December 2, 2013

CLEARING QUARTERLY & DIRECTORY: Another Piece of the Puzzle

As DTCC Buys Omgeo, the two clearing and post-trade giants mull the needs of the buyside, the after-effects of 2008 and the coming decade

By By Phil Albinus

When the leading clearing body acquires the next leading clearing entity-especially when they both boast a global reach-it's hard not to notice.

Earlier this fall, officials from the Depository Trust & Clearing Corp. announced that it had completed its 100 percent acquisition and ownership of Omgeo, the provider of post-trade services known for its international buyside clients. Previously, DTCC and Thomson Reuters had jointly owned Omgeo. Financial details for the deal were not released to the public or the press.

The numbers behind both of these post-trade firms are staggering. Last year, DTCC's subsidiaries processed securities transactions valued at around $1.6 quadrillion. It provides custody and asset servicing for securities issues from 131 countries and territories valued at $37.2 trillion. DTCC's global trade repositories record more than $500 trillion in gross notional value of transactions made worldwide.

Omgeo, for its part, boasts 6,500 clients and 80 technology partners in 52 countries. In 2013, Omgeo systems processed more than 723 million transactions.

Why would these two large and wide-reaching firms agree to an acquisition of this scale? To take a hint from the title of a James Bond film, the world is never enough. In a truly global and interconnected economy, both established and emerging markets need post-trade and clearing services to compete and manage risk.

Traders Magazine spoke with notably chipper Omgeo president and chairwoman Marianne Brown in London and DTCC president and CEO Michael Bodson in Jersey City, N.J., to find out what's behind the clearing merger in an era of both Big Data and Too Big to Fail.

WHY DID DTCC BUY OMGEO?

According to Bodson, the acquisition of Omgeo was a no-brainer, especially after the dust settled following the credit crisis of 2008. After that tumultuous year, Bodson says, his and other financial services firms looked at post-trade infrastructure on a global basis. "There is a new appreciation for what happens in the post-trade space, but also for the first time, there's been a serious rethink about the competitive advantage that firms get from owning the whole vertical stack on the post-trade side of the equation," he said.

Bodson and his team looked at where DTCC could add efficiencies and value to firms that realized once and for all they were in an interconnected market. Omgeo's global reach was a clear plus. "I think the industry saw an asset in Omgeo both in the post-trade matchings functionality as well as in the dealers' database and some of the other services Omgeo offered," he said. "We felt that having that under a more industry-governed structure, a user-governed structure like DTCC has, would better align those capabilities and the interests of the industry."

Brown and her team at Omgeo say the acquisition by DTCC came at the right time. The Omgeo board of managers recently conducted a study of market sentiment and she says she can sum up the findings in a single word: utilization. Firms took a look at their back offices and noticed they were performing the same functions again and again, firm by firm, she recalled. "The feeling was that there's got to be a better widget, a better way, and how do we leverage trusted industry partners to enable that sense of utilization?" she said of the Omgeo study.