Wall Street Systems (WSS) is to acquire Deutsche Bank’s 50% interest in Socx (Settlement & Operations Clearing eXchange), the pair’s joint outsourcing venture which was launched in October 2001 (see Profit & Loss, January 2002). The bank will continue to use WSS’s treasury engine to process its money market transactions in-house.
Deutsche has been refocusing on its core competencies for some time, having recently divested itself of substantial parts of its Global Securities Service business to State Street, first reported in Profit & Loss, October 2002. “While we believe that the outsourcing market is growing and can only expand in the future, Deutsche Bank has taken the strategic decision to focus our management time and investments on our core competencies,” says Will Meldrum, head of global markets e-strategic investments for Deutsche Bank. “The divestiture of our shareholdings in Socx and other non-core competency holdings is consistent with our strategic focus.”
Socx was established to provide an outsourced back office service which supports FX, fixed income and vanilla derivatives as well as money markets, but has yet to attract a client other than Deutsche, something it saw as key at launch. “Socx believes that a non-Deutsche Bank client is important because it would increase our credibility further and add to our reputation,” said Mark Bradbury, chief operating officer of Socx at the time
The partners had been discussing its future for the last three months, says Mike Thrower, marketing director of WSS, as a result of both the new focus at Deutsche and the lack of clients. Thrower is keen to stress, however, that there has been no lack of attention from other institutions. “The platform has attracted massive interest, and the Socx team has really pushed awareness of the platform,” he says. “Deutsche Bank is the only client at this stage, but we are in negotiation with a number of other institutions, who have been briefed on the situation and are keen to continue working towards agreements.”
Thrower says that WSS is quite far down the negotiation process with around half a dozen organisations, but points out that the sales cycle is somewhat longer for strategic outsourcing than simply installing a vendor’s product, mainly because of the extra due diligence involved.
It could also be suggested that taking Deutsche out of the equation could actually help build the business, given that institutions may have been reluctant to sign onto a project that had the bank so deeply involved, particularly with the nature of the information that would be outsourced. Thrower declines to comment on this supposition.
In terms of where the business goes from here, Thrower is positive, but reluctant to give details at this stage. “It is a little early to talk about where we go from here, whether we continue with the Socx brand or bring it more directly under the wing of Wall Street Systems,” he says. “Once the acquisition is completed we will look at how to fine tune the business and take it forward.”