Connecting two seemingly separate pieces of news: Thomson Reuters and Markit with their collaboration to launch the so-called “Open Federated Chat” instant messaging system to compete with the recently scandalized Bloomberg Chat; and Temasek’s acquisition of a 10% stake in Markit.
Why Thomson Reuters doesn’t stand much chance of displacing Bloomberg’s chat service
Bloomberg terminals have become pretty much indispensable to investors, and one of the key reasons, besides their news and data, is their private chat feature, where much of Wall Street’s conversation happens. Since the company’s journalists were caught peeking at data about users’ activities, the users have somewhat lost trust in that privacy. But is that enough to pave the way for a new player?
Financial-data firms Thomson Reuters and Markit—with some support from Goldman Sachs, Deutsche Bank, and maybe JP Morgan—certainly think so (paywall). They’re reportedly launching a venture called Open Federated Chat to compete with Bloomberg’s chat. But the new service will have a lot to live up to.
“They know that they can’t match the data side,” said the source, who had access to data on Reuters’ Messenger but spoke to Quartz on condition of anonymity. “But Reuters is much stronger in Europe and Asia [relative to its performance in the US], where the Bloomberg terminal hasn’t had as much penetration. Reuters Messenger is really popular there.” The existing technology is expected to serve as a jumping-off point for Open Federated Chat; the main difference seems to be that the new service will have the backing of Markit and major banks.
Thomson Reuters gives Messenger to Wall Street users free of charge, both as a standalone platform that synchronizes with chat networks like AOL and Yahoo, and as part of Reuters’ Eikon terminal interface. It offers more features than Bloomberg’s chat service, particularly in its chat rooms. The most recent of these, launched in January of this year, was the Global Markets Forum, which is run by a handful of Reuters editorial staff. Like the existing Global Oil Forum and Global Ags Forum, it encourages users to banter about the markets. Big-name economists and investors like Société Générale’s Kit Juckes and HSBC’s Steven Major are invited on to stimulate the discussion. Other chat rooms are locked to journalists.
Like Messenger, Open Federated Chat’s key advantage is that it won’t have to be attached to an expensive terminal. “I don’t think [OFC] will kill the Bloomberg terminal dominance, but it could lead to more sharing of machines by adjacent subscribers,” a former banker and current Bloomberg user who goes by IvantheK told us in an email. In other words, if employees who have Bloomberg terminals can chat securely to those who don’t, financial firms may not feel the need pay a $20,000-a-year Bloomberg subscription for each employee.
Although firms already have that option if they use Messenger, Reuters is evidently hoping that the scandal around Bloomberg will convince more of them to adopt OFC. A spokeswoman for Reuters said that Messenger’s “open philosophy on bringing the marketplace together” would make it attractive if a number of banks decided to adopt the technology en masse, though she wouldn’t confirm reports on the new OFC service or banks’ interest in it.
And while I can’t really comment on the fair valuation of Temasek’s USD500m purchase of a 10% stake in Markit, since the company is privately held, I am cautiously optimistic this is one of Tem’s smarter trades in recent years (admittedly the bar for this isn’t set very high, considering their embarrassing top-ticked purchases of US banks in 2007/08). Have always thought that the best way to gain some positive exposure to the exponential growth of the trillion-dollar OTC derivatives industry without actually having to take a position and buy/sell a CDS, is to be long the one company which is at the centre of the action, the data provider itself, Markit.
Temasek to take $500m stake in Markit
Temasek, Singapore’s sovereign wealth fund, is poised to take a stake worth around $500m in Markit, the UK data provider that has become an influential force in financial markets in recent years.
The fund is in advanced talks to acquire the stake, two people familiar with the matter said, as the London-based company examines its options for growth in coming years. The percentage of Markit’s equity Temasek will acquire has not been disclosed.
Markit has expanded rapidly since it was founded in 2001, building a dominant franchise in providing data on prices and valuations of privately-traded credit derivatives. It has since expanded into a sprawling empire encompassing data valuation, back-office operations and financial services. Private trading in Markit shares last year valued the company at $4.5bn.
Its data was instrumental in spurring the development of the market for credit default swaps – tradeable financial instruments that allow investors to bet on the likelihood of debt default or hedge against such risk. The gross amount of CDS outstanding is now $27tn, many of which are based and daily valued on prices supplied by Markit.
Markit is eyeing opportunities created by reforms such as the Dodd-Frank act in the US, which requires greater processing of so-called over-the-counter trades through clearing houses and are forcing banks, asset managers and hedge funds to spend money on tracking risk.
It offers valuation for banks to assess whether they meet Basel capital requirements and sells technology that connects banks and asset managers to clearing houses that process OTC derivatives.
In recent days Markit has been examining its strategic options, including a potential initial public offering, and last week it ran a beauty parade for investment banks.
“Every year we look carefully at all options available to the company,” Lance Uggla, chief executive of Markit, told the Financial Times. However, he added: “We have not made any decision to pursue a public listing.”
Markit is owned by a group of banks, asset managers, brokers and its management, although no one party owns more than 15 per cent of the stock. However in January 2010, General Atlantic Partners invested $250m for a 7.5 per cent stake, valuing the group at about $3bn.
The stake that Temasek is expected to take will reduce the banks’ stake to a minority shareholding, one person familiar with the matter said.
That will help Markit “broaden its governance and reduce conflicts” at a time when it is looking to expand.
Temasek declined to comment.
Markit has a growing association with Singapore, where it opened an office in 2005. Last year it launched a bond pricing service for the Singapore dollar bond market.
Antitrust officials in Brussels are investigating whether the Markit played a role in helping some investment banks shut rivals out of establishing credit derivatives trading platforms.
As for Thomson Reuters Messenger, I don’t recall having a chance to use it at my old firm during the trial period when we were trying out the Reuters Xtra terminal. But Bloomberg Chat was of course the main interface we used to communicate with our prime broker and secondary brokers. Since the firm-fund was a long/short fund, most trading positions were structured consisting of at least two, usually more, legs or components, long and short. So our trade orders to our brokers were not just for a single security, but come in at least a pair of orders, revolving around the all important price ratio (eg: Say a simple cross-border long/short trade on semi-cons favouring the taiwanese: long TSMC/short Hynix. Current prices are USD18.89 and KRW31450 respectively, giving a price ratio of ~0.6, ignoring the currency units and dropping some redundant zeroes to use the big number/handle. I would give a trade order to our broker by telling them to work an order for the two stocks with the price ratio limit of 0.59 or better, meaning they would try to buy for me TSMC at about 18.70 or lower, and short Hynix at about 32000 or higher, or even at other prices as long as my ratio limit of <0.59 is kept to). As I was the main analyst/trader placing and monitoring the trade orders to our brokers, I had quite a fair bit of BB chat messages going back and forth with the various brokers to gauge market sentiment for the securities I had trades ongoing, check on my order fills and to revise/widen/narrow my price ratio limits as need be or even to call in a hasty flattening to unwind and take us out of a position.
We knew BB could track our messages on their system, and at times we tried to use only email and the phone to place our trades, for better security and accountability. But nothing beats BB chat for the speed, convenience and flexibility, since everyone was on it real-time. I guess even in the scummy world of finance and trading, there was still an 'honor code' in which we expected, if not the integrity-free traders and brokers, then at least a supposedly neutral data provider like Bloomberg, should adhere to.