State Street has acquired BestX, a software company that provides independent trade technology and TCA analytics.
The financial terms of the deal, which is expected to close in Q3 subject to closing conditions and regulatory approval, are not being disclosed. Following the deal, BestX will sit within State Street’s Global Link product suite, which is run by Martine Bond, executive vice president and head of trading and clearing for State Street Global Markets.
“Over the past few years, Mifid II, combined with broader economic and political stresses in the market and great competition in the FX market, has meant that our clients are looking for greater transparency and ways to improve their performance and their returns to client and shareholders,” says Bond. “So we started to look at strategic partners that could really help us achieve those goals for our clients and that’s why in January this year we partnered with BestX to offer TCA solutions. We had an overwhelmingly positive response from both the buy side and sell side and it became obvious to us that the BestX team were very strategic in the way that they thought and understood that this isn’t just about post-trade TCA, there’s so much more that we can offer clients. So I think that this acquisition is really the formalisation of that partnership, which we want to take to the next stage and I think that our clients are going to be delighted with the direction that we’re taking.”
For the BestX team, this deal represents an opportunity for the firm to scale up much faster than if it were relying on just organic growth.
“For us, very simply, this is about taking BestX to the next level,” says Oliver Jerome, co-founder and director of BestX.
He points out that while BestX currently has more than 60 clients, being part of Global Link – which includes FX Connect – will give the firm access to a much broader universe of clients. Not only this, but the sell-cycle for FX Connect clients will be materially shorter, says Jerome, because BestX can be added to the legal documents that already exist between Global Link and its clients and due to the fact it will be easier to run test portfolios and get client’s data into BestX’s system, given its existing integration with FX Connect. He also envisages that this deal will enable the company to expand much more rapidly geographically, pointing out that with 19 employees and only one sales person based in the US – and a recent hire at that – the firm simply doesn’t currently have the bandwidth to meet all the opportunities that he sees in non-European markets.
“This deal also allows us to go from simply being FX TCA to delivering a truly cross-asset TCA product that includes fixed income and equities at a price that clients can afford. We’re very keen that BestX is able to compete with the 800-pound gorillas like Bloomberg and Markit, and this acquisition by Global Link enables us to do this in a way that we might not be able to do as an independent company,” says Jerome.
Picking up on this last point, Pete Eggleston, co-founder and director at BestX, comments: “I think that we got to a point where we were at a bit of a junction and for us to take the business to another level and take it to a scale where it has the potential to truly become an industry standard, we either needed to continue growing organically or go down the path that we are now with Global Link. We feel that, weighing up the advantages and disadvantages of both, this partnership is the fastest route for us to deliver a market leading, cross-asset product for our clients, whilst retaining our independence and our open architecture that links to all the EMSs and OMSs out there.”
It might sound slightly strange to hear a firm that is being acquired by a big bank like State Street to talk about retaining its independence, but Eggleston and Jerome insist that BestX will remain as a standalone product within the Global Link product suite and that there will be no changes to the firm’s infrastructure, data security or information sharing following the deal.
“No one else will have any ability to look or share anything processed through the BestX product,” says Eggleston. “So we will remain totally independent in that context, which is critical. Secondly, we will be independent in the sense that clients can continue to interact with BestX in whichever way they want, it’s not like the other providers that might be linked or completely embedded in particular EMS. Obviously, there will be a lot of mileage with FX Connect, but we will continue to have STP with FXall, with FlexTrade and others. So independence in that sense is also critical, it’s what our clients are asking for and it’s what we’ll be delivering.”
On this issue of BestX’s continued independence, Bond is keen to point out that the success of the platforms within Global Link is derived from encouraging participation from the broadest set of market participants possible, and that the firms utilising these platforms already provide a vast amount of proprietary data and execution information to the State Street infrastructure because they trust that the right information barriers are in place and that this data will be handled with the utmost care.
Highlighting that FX Connect won “Best FX Platform for Asset Managers” at the Profit & Loss 2018 Reader’s Choice Awards, Bond says it’s unlikely clients would have voted for them to win the award if they weren’t happy with how their data was being handled by the platform.
“I think it’s absolutely critical to us that BestX maintains its brand, it’s identity, it’s independence of thought, it’s independence of data and remains agnostic to how clients want to deliver and receive that information,” she adds.
Jerome says that BestX has spoken to every single one of its clients about this deal and claims that the feedback from these discussions has been universally positive, with these clients viewing Global Link as purely a technology division of State Street that provides a series of standalone products.
If BestX is remaining as an independent product, this perhaps begs the question of why State Street is buying it in the first place, considering that it already had a partnership that enabled its clients to use the service.
The answer from Bond is that, following the initial partnership, both State Street and its clients immediately saw the potential for BestX beyond its current offering.
“We had clients asking: could you create a pre-trade analytics product? Could you integrate this further with the back-end workflow? We use your equity TCA, could you do something so that we can get all our TCA through BestX and don’t have to use multiple platforms? We have a fixed income clearing business and we had clients there ask how they could get their fixed income data involved in this. It was these types of conversations that really triggered the notion that we should formalise this partnership and bring these platforms together to create a best-in-breed, multi-asset TCA solution for our clients. But I think this deal can also add value in other ways as the markets evolve and become even more focused on transparency, reporting and analytics,” she explains.
Bond also says that State Street will over time look to integrate its existing equity TCA platform, called Elkins McSherry, with BestX.
“That platform has just under 100 clients and has some really good analytics, and so I think that bringing these two together is going to be massively powerful, and I think that being able to overlay some of the front-end technology, the reporting, the analytics tools that BestX has onto the great Elkins equities market data and analytics is a really strong point of this deal,” explains Bond.
On the subject of expanding out beyond FX, Eggleston says that BestX already has product for liquid fixed income markets in beta. But, as he points out, producing a comprehensive fixed income product requires a massive amount of data, which is expensive. However, the fact that BestX will have greater infrastructure and financial power behind it following its acquisition means that the firm can accelerate the delivery of fixed income analytics, according to Eggleston.