IBM Corp. is the quintessential blue chip, the kind of investment that the New York Stock Exchange would portray in its advertising as an exemplar of capitalist innovation, resiliency and long-term returns. As a supplier of computer systems and services to large corporations, IBM profits handsomely from its relationships with many NYSE-listed companies, among them parent NYSE Euro-next and its affiliates.
Now, however, following a spate of recent acquisitions, the Big Board and Big Blue are on a collision course, newly squared off as competing suppliers of market data technology. Their strategies have converged in the field of high-performance data feeds, on which traders depend for the tick-by-tick quotes and analytics that fuel algorithmic and high-frequency trading. NYSE made the first move, completing its purchase of Wombat Financial Software of Incline Village, Nevada, on March 7 for an undisclosed price. IBM followed on April 29 by buying another privately held data feed company, InfoDyne Corp. of Park Ridge, Illinois.
For IBM and NYSE Euronext, with 2007 revenues of $99 billion and $4 billion, respectively, these are hardly market-moving transactions, at least for the near term. But in the ever more competitive world of institutional e-trading, where decision making and execution times are measured in milliseconds and microseconds, the financial market and technology giants are thinking alike, seeking to capitalize on opportunities in similar ways.
“From my perspective, IBM and NYSE Euronext have a very complementary relationship, though we do offer alternatives in one or two segments,” says Danny Moore, CEO of Wombat and senior vice president of NYSE Euronext. “As electronic trading is spreading across global markets, it is generating a whole new set of customer requirements that traditional vendors have been slow to react to.”
NYSE responded tactically with the formation, also announced in March, of NYSE Euronext Advanced Trading Solutions, a division consisting of Wombat and a previous acquisition, market-connectivity networker TransactTools, that will challenge the technology offerings of arch-rival Nasdaq OMX Group, as well as vendors like IBM. “Being the fastest and having the lowest latency is how many people make their money,” notes Moore, referring to the unrelenting drive to minimize the communications delays between trading desks and market centers. “So it only makes sense that companies are investing intensely in high-performance data feeds.”
IBM’s InfoDyne was “founded on the principle of zero tolerance for latency,” says its CEO, Guy Tagliavia. With InfoDyne and two other acquisitions earlier this year, AptSoft of Burlington, Massachusetts, and Cupertino, California–based Solid Information Technology, IBM has assembled a portfolio of trading-related database and analytical tools. Together they match up against those of NYSE, Nasdaq and other algorithmic trading and high-performance data products from the likes of Chicago’s Aleri; StreamBase Systems of Lexington, Massachusetts; the Apama division of Bedford, Massachusetts–based Progress Software Corp.; and Silicon Valley companies Coral8, Kx Systems, Truviso and Vhayu Technologies Corp.
Many of those names are active in the emerging business of complex event processing, which enables the rapid digestion and analysis of huge stores of current and historical market data. “CEP has grown extremely rapidly in the past few years as firms have moved away from the traditional ‘store-then-process’ model and toward a completely stream-driven, low-latency approach,” says Daniel Chait, managing director of Lab 49, a systems consulting firm based in New York and London. Now two of the data stream players are part of IBM and NYSE Euronext, deep-pocketed enterprises that could begin to alter the competitive landscape as they blur distinctions between technology sellers and buyers.
Tom Rosamilia, general manager of IBM’s WebSphere software group, says its goal is to help buy- and sell-side customers “adapt to the escalating volume and speed demanded by an increasingly automated and globally integrated industry.” William Cline, a veteran capital markets consultant who is founder and managing partner of New York’s Cline Group, sees IBM building on the InfoDyne market data foundation “a wide variety of fast-growing applications in proprietary and algorithmic trading [and expanding] into new asset classes and geographies.”
Sam Johnson, CEO of NYSE’s TransactTools, makes no apologies for encroaching on the traditional vendor turf. “Exchanges need to be in the technology business,” he asserts. Electronic access to liquidity and execution has become the name of the game, requiring “a broader set of solutions for our customers,” he adds.
