UPDATE: Liquidnet Acquires OTAS Technologies

The trading network adds OTAS' analytics system to its buy-side trading platform.

M&A news
The acquisition will expand Liquidnet's capability to offer Mifid II compliance in best execution.

Liquidnet has announced the acquisition of OTAS Technologies, expanding its services with an analytics and market insight system to provide a better decision-making process for the buy side and to ensure compliance with Mifid II’s best execution requirements.

The acquisition will result in the combination of Liquidnet’s Virtual High Touch decision-support trading platform with OTAS’ analytics platform. 

The Virtual High Touch platform was introduced in November 2016 to support traders with their best execution obligations, providing decision-support tools for institutional traders, such as advanced data analytics, liquidity search tools, advanced algorithms, and real-time decision support.

Rob Laible, global head of equity strategy at Liquidnet, tells WatersTechnology that regulations—and specifically Mifid II—were a key reason for acquiring OTAS.

“Given the regulatory environment, what used to be art now is becoming more of a science,” he says. “The more quantitative support tools you can use, the more rigorous your process; so this acquisition makes a lot of sense.”

Laible says that while the two vendors come from different backgrounds, they are similar in many ways.

“We tend to be more at the point of the trading decision, where we try to give people insight into which path to take, such as which algo to use, or doing a block and then following up with a specific algo, etc.,” he explains. “OTAS is quite different, in that they alert users to something that’s going on that they need to pay attention to and should interact with. … Together, we can provide a complete end-to-end, insightful innovative solution that traders can use in their pursuit of best execution.”

Together Alone

Liquidnet says both companies’ products will integrate, while they will also continue to operate separately for each client base, if desired.

“What we have is a front-end that is used by approximately 850 of the largest institutional managers in the world,” he says. “We will gain a lot of value through OTAS’ quantitative analytics and we plan to integrate them into our front-end for our strategic members.”

He says that OTAS will continue to support their channel partners, order management systems (OMSs) and execution management systems (EMSs) and their current subscribers. OTAS has more than 60 financial institutions connected to the platform, either directly or via other partners, such as OEMS providers. 

“The value will be in our front-end, where will be able to deliver our intellectual content in an unencumbered way,” he explains. “Through leveraging our existing distribution, we will be able to move quickly and continue to innovate.”

The Mifid II Effect

As Mifid II’s January 3, 2018, implementation date draws closer, the industry is experiencing shifts on various levels, including what is expected of third-party vendors.

Spencer Mindlin, capital markets analyst at Aite Group, says that while asset management firms have been using technologies like OTAS for a long time, they have been slow to think how they are going to comply with Mifid II.

OTAS is the answer to a lot of questions about what to do for Mifid II,” he says. “Bringing them together is going to be good, as they provide a useful suite of tools for asset managers.”

While Liquidnet is helping with the trading process, OTAS is focusing on the real-time analysis and decision making. “Independently, they were good,” Mindlin says. “But together they’re much more useful; it is important to have one company responsible for both, ensuring that OTAS’ software is in line with the rest of what Liquidnet is doing.”

Consolidation Trends

The acquisition is part of a pattern Mindlin has identified lately in the industry. While some mergers are merely a way for firms to reduce costs and survive, Liquidnet–OTAS falls into another category.

“You see firms acquire smaller ones that are nimble, disruptive or innovative with what they’re doing,” Mindlin explains. “For example, Liquidnet recognized that OTAS has built a very niche and good product and was looking for ways to get bigger.”

Picking up OTAS, he says, defends its position to the rest of the industry and gives a competitive advantage.

“It is important to appreciate what’s going in technology itself that has enabled OTAS to get where it is,” Mindlin says “New firms are able to spin up utilizing technologies like new APIs and HTML5 and become relevant very quickly.”

He says larger firms are looking to buy these specialized niche products because it is much easier to let someone else develop a product like that and then pick it up rather than trying to innovate internally.

“The barriers to innovate and build new technology have come way down,” Mindlin explains. “That’s why you’re going to see more consolidation happen, where large firms are picking up small new ones to bring them into the fold.”

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