RealTick’s long and winding road continues after a deal to purchase the pioneering execution management system closed earlier this week.
The brokerage ConvergEx added RealTick to its stable of offerings to institutional traders. It purchased RealTick from Barclays Capital, which decided to exit the business, selling the independently run subsidiary. RealTick’s history is an interesting one: It was purchased by Lehman Brothers in 2005 from Townsend Analytics, which developed not only RealTick, but also created the ECN Archipelago. Lehman purchased RealTick when big brokerage shops were falling over each other to own a front end.
Despite the changing landscape for the EMS, participants in the deal describe the transaction as a win-win across the board.
For ConvergEx, the acquisition delivers a respected EMS as another service to offer customers. RealTick, as an EMS vendor, brings more heft to the agency brokerage’s efforts to re-position itself as a technology company, said Craig Lax, who runs ConvergEx’s electronic trading business. In recent years, ConvergEx has viewed itself as more of a technology provider than a traditional brokerage firm.
"We’re trying to transform ourselves," Lax said. "The EMS was certainly a hole in our offering."
For RealTick, the move to an agency brokerage fits its broker-neutral model better–ConvergEx is seen as more broker-neutral than Barclays. RealTick also retains its stand-alone status under ConvergEx and can continue its own strategy to reach out to new customers–namely brokerages–with technologies it plans to continue developing.
For Barclays, the sale loosens the responsibility of overseeing a subsidiary that develops technology, said one industry exec. But it also demonstrates an unraveling of a trend that started among the largest banks 10 years ago: the Great EMS Buying Spree.
In 2000, Goldman Sachs made the first move by purchasing Spear, Leeds & Kellogg, the New York Stock Exchange specialist and Nasdaq market making firm. This gave Goldman the EMS REDIPlus. It made REDI a central component of its electronic trading and its prime brokerage offering. Soon thereafter, Goldman’s competition followed suit and jumped on board.
Morgan Stanley built Passport in 2002; Citi bought Lava Trading in 2004; Banc of America Securities acquired Direct Access Financial Corporation and its front end, Instaquote, in 2004; JPMorgan acquired Neovest Holdings in 2005; UBS first deployed Pinpoint for clients in 2006. As three of the largest prime brokers in the business, Morgan Stanley, JPMorgan and Goldman wanted front-ends as part of their prime brokerage offerings, so they could make changes quickly in response to customer demand. They also believed that having an EMS would lead to more incoming order flow.
In 2005, Lehman Brothers bought Townsend Analytics at a time when it was looking to build out its electronic equities platform, according to Barclays spokesman Mark Lane. RealTick then was mostly a retail product. Lehman transformed it into one used by many institutional investors, as well as many banks on the Street. Barclays inherited the EMS when it bought Lehman’s U.S. operations after the bulge bracket firm collapsed in the fall of 2008.
Over the past few years, the largest banks started taking a closer look at their core businesses to see where and whether certain business lines still fit, said Harrell Smith, a former consultant who now heads the product strategy group at EMS vendor Portware. In July 2009, Citi decided to drop its EMS, LavaX, and move its institutional clients over to TradingScreen’s EMS. LavaX had been primarily a single-stock equities product and Citi didn’t want to spend the money to build anything multi-asset or global in scope.
Barclays decided that, by already having a fully built-out electronic equities franchise, an EMS was no longer seen as a core part of its strategy, sources said. Barclays, though, keeps RealTick as a viable third-party EMS for its customers and its traders.
Today, RealTick has more than 1,000 clients. About 15 percent of those are on the sellside. The rest are buyside customers. The majority of its business is large and midsize hedge funds, said Stuart Breslow, chief executive of RealTick. Breslow will hold the same title at RealTick under the ConvergEx umbrella.
In addition, RealTick will continue as a stand-alone entity under ConvergEx, just as it was with Barclays, according to Lax. ConvergEx doesn’t plan to alter how clients pay for RealTick, as customers will still pay a software license, Lax said.
ConvergEx would not disclose details of the acquisition. One industry exec estimated the RealTick deal ran in the $70-to-$85 million range. The privately held ConvergEx, though, said it expects the purchase to be accretive to earnings, but would not elaborate.
ConvergEx owns Eze Castle, an order management system for the buyside that comes with an EMS embedded in it. The EMS emerged out of the union between BNY Securities Group and Eze Castle Software in 2006. The service is available, though, only for Eze Castle customers. RealTick is ConvergEx’s first stand-alone EMS.
"We think we have a lot of credibility in the multi-broker space," Lax said. "If we were a brokerage firm just looking to drive order flow into our trading engine, we probably would not be looking at the EMS space right now. It was the trend seven or eight years ago, but as the demand for truly independent, multi-broker product grew on the customer desktop, it turned out to be not a great way to drive order flow."
RealTick also will look to continue to expand its technology beyond its EMS offering, Breslow said. The firm is best known for its EMS front end.
"We’re much more than just a front end; we’re really a trading technology provider," Breslow said. "But it’s really the whole soups-to-nuts infrastructure, where people can trade through our order-routing network using the front end, which a lot of people do, or using our very robust API or just using FIX direct into us. We’re definitely going to continue down that path."
But will RealTick fit with ConvergEx? Two sources told Traders Magazine that they thought RealTick was a good fit with ConvergEx. One said that RealTick has made upgrades on its platform to improve the product. In the end, as with all products, its clients will be the judge.
