Fidessa's Acquisition of Latent Zero Means Synergies for Buy and Sell Side

With more multi-asset trading on the horizon and buy-side firms clamoring for streamlined integration of OMSs and EMSs, London-based royalblue group, the company behind Fidessa, has agreed to acquire LatentZero, a provider of buy-side order management systems, for $125 million.

According to Fidessa CEO Mark Ames, the reason for the acquisition is that " LatentZero offered us a unique opportunity at a tangible level. They are very focused on the buy-side as we are on the sell -side." Citing their whole culture, technology development and philosophy, "Strategically, it had all the right signs," he says.In addition, Ames notes that the buy and sell side are starting to overlap with the network (connectivity) and with the EMS. "The dynamic is changing between those two sides of the coin and it's very important the services be of high quality," says Ames.

The deal is also notable because it keeps the buy-side software provider in independent hands at a time when agency brokers have been acquiring OMS providers and asset managers are concerned about keeping systems independent and broker-neutral. "It is different from the transaction that happened with ITG and Macgregor and Eze Castle and ConvergEx," says Ames.

According to the deal that was announced Monday morning, LatentZero will continue to operate as a separate entity within the royalbluegroup. The existing management team, including Richard Jones, co-founder and CEO and Dan Watkins, co-founder and director, will remain in place as part of the transaction. The transaction is expected to close on April 27th.

The pending transaction instantly gives Fidessa, a provider of sell-side order management systems, market data and global connectivity, access to a leading specialist in asset management software, which has nine of the 10 largest asset managers as clients.

"This is certainly a step in their desire to increase their buy-side presence," says Brad Bailey, senior analyst at Aite Group. "While LatentZero will get power from the Fidessa distribution, with its huge sell-side global presence, royalblue can leverage Latent Zero for increasing its presence on the buy-side," he says. "Some of the offerings that Fidessa is putting out will probably fit very nicely with LatentZero," he adds.

Last June, Fidessa introduced BlueBox, a development toolkit for creating algorithmic trading strategies. More recently Fidessa rolled out a buy-side EMS (execution management system).

Meanwhile in February, LatentZero launched what it called the first truly integrated OMS and EMS system, addressing the buy-side's need for high performance trading and concerns over whether OMSs can keep up with the high volume of cancel/replace orders and quotes that result from algorithmic trading.

"The strategic landscape in EMS/OMS land is certainly ripe for some changes," comments AiteGroup's Bailey. "When we look at what's happening with more algorithmic trading and DMA and electronic trading access, the process can be slow with a lot of executions, drop copy orders coming back," through the OMS, notes Bailey.

Since both companies offer access to algorithmic trading strategies and offer an EMS, they will be looking for synergies among their product lines, say executives for both companies.

Emphasizing that Latent Zero is very successful, Ames says, "We don't want to change that. We want both sides to continue and look for the synergies," he says.

"The OMS will continue and we're not going to replace any products," says Dan Watkins, co-founder and director of Latent Zero.

Some of the areas they will look at are "common things like market data and static data where there's a common need for both sides of the fences," says Ames, CEO of Fidessa.

Though both companies have an EMS, Ames notes that they are not overlapping in that LatentZero services a very top end of the buy-side with an enterprise solution that is deployed inhouse, whereas Fidessa's EMS is a hosted service mainly for hedge funds.

While LatentZero's clients benefit from the OMS/EMS integration, Ames notes together they could provide a hosted deliverable that is geared to trading.

In terms of global connectivity, that's another area where LatentZero could leverage Fidessa's extensive access to 68 exchanges and 170 brokers. "We spent some of the last 12 months planning and being in that space. Now that we're being acquired by royalblue, we can link into that very inexpensively. Obviously their network is FIX enabled and we are also, so to make that available to their clients," is not difficult, he suggests.

On the multi-asset trading front, Fidessa has a good base in equities and listed options and futures. However, LatentZero brings expertise in the full fixed-income and fixed-income derivatives space as well as in the equities and equity derivatives as a result of the integrated investment philosophy on the buy-side, notes Watkins.

Watkins sees electronic fixed-income trading as part of the future because the liquidity is much more dispersed. He says there is potential to let the sell side share their liquidity on a targeted basis to their clients. "That means we would essentially be allowing both sets of clients communicate with each other on a private basis, as opposed to participating in an ECN or ATS," he explains. " I think for certain asset classes that is going to be the way that people want to work," says Watkins.

But will this set off another round of consolidation among buy-side OMS vendors? There have been several deals with agency brokers snapping up OMSs. ITG bought Macgregor and last year BNY Brokerage and Eze Castle Software formed BNY ConvergEx Group. This leaves Charles River, Linedata's Longview Trading System as the two remaining independent players among the big four. "We do think this does put pressure on the competition," says Ames. "We become a much bigger entity than either of those two entities that are remaining," he says. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio