Few suppliers of trading technology, banks or other potential buyers appear interested in buying ConvergEx’s Eze Castle and RealTick units because they fear they could wind up overpaying for systems that don’t fit well into their product lineups, according to three industry executives interviewed by Traders Magazine.
New York-based Eze Castle makes order management systems, which are popular among hedge funds. RealTick makes execution management systems, which are designed to provide better execution and investment performance. RealTick, which began as Townsend Analytics in 1985, was bought by ConvergEx in December 2010. RealTick sells its services to asset managers. Goldman Sachs has been shopping the proposed package sale of Eze Castle and RealTick, as Traders Magazine first reported in October. The asking price: $1 billion.
But industry executives told Traders Magazine that potential buyers are thinking twice about buying.
“It feels like it’s going to be a tough sell when you look at the OMS vendor space,” said one equity trading executive familiar with the two properties. “I think their OMS is tied more into hedge funds than plain-vanilla asset managers.”
Plus, vendors of order and execution management systems are plentiful. They include Charles River Trader and Fidessa Latent Zero in the OMS space, and TradingScreen and Bloomberg in the EMS space.
The way these vendors are proceeding, the systems could get merged. Charles River, for example, has spent the last five years rewriting its OMS into an “OEMS”—an order and execution management system. TradingScreen began as an EMS and has developed an OMS for hedge funds. Layering on Eze Castle and RealTick systems wouldn’t make sense, one of the executives interviewed said.
The acquisitions might be more appropriate for a bank looking to broaden prime brokerage relationships, said one equity trading executive.
Institutional brokerage ConvergEx declined comment on the pending sale, when contacted for this story. ConvergEx parent BNY Mellon also passed on commenting.
Eze Castle, parties familiar with ConvergEx’s operations say, has been the company’s crown jewel, since Eze Castle Software merged with the Bank of New York’s brokerage division in October 2006 to form BNY ConvergEx Group. The goal of the merger has been to build a technology provider to the brokerage industry. That would presumably make the brokerage less dependent on commission revenue, as trading volumes fall.
However, another equity trading executive questioned whether the package was a good fit for any potential buyer and whether both are needed. He said the most valuable part is Eze’s routing hub, which is a multi-strategy order management system for all asset classes. That hub is designed to provide portfolio management, compliance, trading and operations services in one place.
“The advantage,” said one trading executive, “is one can get more than one asset class on the same system. Being able to get order flow and executions back and forth between assert management and broker-dealer desks—that electrical connectivity is high-margin business. That’s what the real prize is.”
The order hub makes sense, but paying for the whole OMS doesn’t, a competing vendor said.
“But to me, all the painstaking effort in developing and maintaining this OMS, at the given cost structure, just doesn’t seem like a good business,” the competitor said. He added that buying both Eze Castle and RealTick “seems like overkill.”
And there are also many better solutions out there than RealTick, from an EMS perspective, the trading executives said.
Why?
Asset management firms are not switching OMS providers that often anymore. OMS developers are facing a tough time.
Just selling Eze Castle would make more sense, these executives said. One executive at an asset management firm, who recently used RealTick on his desk, complained that RealTick is a laggard.
“RealTick’s functionality is behind many other EMS platforms out there. So somewhere looking to buy it will say ‘OK, it’s going to cost me all this money to buy it and it is really isn’t great,’” the asset management executive said.
It “would not make sense to buy that package and then have to renovate it for our uses. It would be better just to develop our own systems,” he said.
