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Consolidation in the Market Data Space is Not Finished

A View from Exegy’s CEO on M&A in Capital Markets Tech

Headshot - Jim O'Donnell
Jim O’Donnell, Exegy CEO

By Jim O’Donnell
Chief Executive Officer of Exegy, Inc.

We read with keen interest Anthony Malakian’s recent article in Waters Technology on the drivers of consolidation in the market data space. As participants in one of the three major deals highlighted in the article, we were inspired to share our perspective. Our comments span his observations on M&A activity in our industry, the state of product strategies in market data and Exegy’s thoughts on value-added services.

We agree with Anthony’s comments on one of the drivers leading to the three recent deals – Exegy-Vela, Options-Activ and Pico-Redline. All three of the institutional sellers behind these companies had long investment hold periods and were ready to sell in a period which saw the asset values of many technology companies rising in today’s financial markets.

Of course, it takes two sides to make a trade. In our case, Marlin Equity Partners and the existing Exegy management team purchased Exegy and Vela to pursue opportunities for aggressive growth that we identified in the marketplace. By broadening our product and service portfolio for our customers and capturing cost synergies the deal brings, we have created a platform for further organic and inorganic growth. We suspect that each of the other deals, in varying degrees, has similar dynamics.

In twenty years of looking at deals in this space, most have offered an opportunity for cost synergies tied to eliminating duplicative payments for market data and their associated infrastructure costs, including network bandwidth, datacenter space and power, and equipment. Development and maintenance of a global portfolio of feed handlers to normalize market data also represents a significant expense. In our merger with Vela, we saw an opportunity to fully integrate the market data product portfolio and to reduce maintenance costs by carrying a single code base forward.

By serving a larger number of customers with a unified product platform, we achieve a larger economy of scale for a product that requires significant ongoing investment to maintain at the performance and quality levels expected by the leading financial services firms. These expense categories are also frequently incurred by our potential customers and are making the decision to build and support market data solutions in house increasingly difficult.

Latency needs and strategy drives much of the activity in our industry for vendors and clients alike. Since our inception in 2003, Exegy has been focused on building our expertise in hardware acceleration for latency-critical trading operations, investing over $40 million in R&D. To defend our substantial investment and to retain our ability to recoup it in the marketplace, we have aggressively filed patents in this and other areas throughout our history. Today, we have been granted over 175 domestic and international patents with more than 4,000 awarded claims. Using our expansive IP portfolio to accelerate more latency-critical operations in the trading cycle, such as market-making and aggressing algorithms, was another driver for merger with Vela. These patents also were the basis of our suit against Activ Financial Corp. that we settled in June of 2021.

Anthony wrote that “Low latency isn’t reserved for just a few specialist players anymore; it’s been table stakes for a long time.” We believe that to our core and continue to invest in technology to support the implications of that statement. One area of focus is solving latency problems for the largest agency brokers and hedge funds in the world.

Through our deep managed service relationships, we understand the information that drives trading decisions and we seek to deliver those actionable signals as quickly as possible. This has driven us to focus on compute-intensive tasks of aggregate pricing across many markets which also requires consistent, high value normalization. These types of latency strategies require dedicated hardware, hence the long-running success of our FPGA-based appliances.

For latency-dependent trading strategies, fast is now measured in nanoseconds. Achieving this level of performance requires implementation of the complete tick-to-trade stack in hardware. For this reason, we launched the Xero Volatility Trading Engine (VTE) that automates a wide spectrum of market making and aggressing strategies. In combining Xero with the automated trading and DMA platforms in the Vela portfolio, we deliver turnkey trading solutions to our customers that operate at the fastest speeds available.

We recognize that not all use cases require hardware-acceleration. Another driver of our merger with Vela was expanding our ability to supply cutting-edge software solutions, including embedded feed handlers that are co-resident on the same server as customer applications.

At Exegy, we provide our customers with a market-leading latency solution for every latency need. We know of no other vendor that can make a similar claim at scale. In our business, scale means the number of markets, combined data rates, level of normalization, and sophistication of data aggregation.

Each of our competitors is pursuing a different set of initiatives to add additional value to their core offerings. Several years ago, Exegy started an artificial intelligence/machine learning effort that we developed into our Signum suite of predictive signals.  These products combine a deep understanding of the microstructure of market data with the technology advantages of the deployed hardware-accelerated ticker plants to deliver signals to a client’s trading applications synchronously with the delivery of low-latency market data.

This vision of delivering market data enriched with trading signals is core to the Exegy roadmap going forward. It represents the next logical step in our quest to deliver high-value actionable signals with low latency. At Exegy, we believe that predictive market data represents the new “table stakes” for electronic trading – reacting quickly is no longer good enough. This defines much of our path forward and we believe it will be a sea change in how market data is used.

Consolidation in our industry is not finished. There are many deals in the market today and some will undoubtedly be consummated. We intend to be one of the catalysts for this activity in the years to come as we relentlessly strengthen our technology platforms, expand our product portfolio, and deepen our services engagements with the leading financial firms in the world.

To learn more about how your firm can join Exegy at the forefront of market data technology, contact us.

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