What was the motivation behind Markit’s acquisition of Data Explorers?
The Data Explorers business, which is now known as Markit Securities Finance, is a fantastic one. It has great people and a track record of innovation. It also achieves something unique in the marketplace; it has a comprehensive dataset covering the majority of the buy and sell sides, which are consumers of and contributors to the data. We were very impressed with the company and we remain impressed with it. Data Explorers is also in a segment of the marketplace where Markit wasn’t present before the acquisition. We thought that the Data Explorers business was not only a great asset, but it was important for us to be represented in the securities lending market given the changes going on in the market.
It helps that the Data Explorers business is very complimentary to Markit’s existing businesses. This includes Markit’s ETF franchise, which covers not only ETFs, but index management and dividends forecasting, as well as Markit’s quantitative research business.
What have you been doing since the acquisition in April?
We have focused on the integration of Data Explorers into Markit. The bulk of that is now done in terms of organisational integration. What is very important for Markit is that clients remain unaffected through the transition, which I think has been the case. We have strived to ensure that our clients around the world continue to enjoy the same high level of service as they had before, as well as the attention of the same individuals who serve them. This was very important to Markit.
Has Markit been tempted to change the business in any way?
The approach to integration has been that business should continue as usual. It’s a good business and we’re not planning on changing anything. From the people to the technology and all of the structures in between, we intend to keep the business as it is. Customers have said that they are happy with things the way they are, so keeping things the way they are is what we want to do.
There are aspects of the Data Explorers business that we looked at and decided to apply throughout the rest of Markit, because the model was so good, such as the account management function of Data Explorers. If you look at Data Explorers very simply, it took something of an obscure dataset—at least in an area where there was a lot of opacity—and it made the data relevant to a lot of different people using a lot of different innovations. These include the delivery and benchmarking capabilities, innovation in rates, as well as the media insights and forums.
What’s in the pipeline for Markit Securities Finance?
We’re looking to build new products that will solve some of the problems that our clients are facing. A headline theme that is driving a lot of what we are doing is that the securities lending market is undergoing significant change through regulation and the focus on funding. This is affecting the individual cogs, such as collateral, that make the industry tick, because there is an increasing need for transparency and optimisation. We see this as an overriding theme to what we do.
What the team is working on now can be divided into a few different areas. In ETFs, Markit has a significant franchise that can benefit from short interest, supply and demand and rate information. This information is extremely relevant for those who work in securities lending and ETFs, as well as the underlying constituents of an ETF, so it is a fairly quick win to cross-pollinate those two businesses.
We are also looking at ways in which we can provide workflow solutions to those issuing, trading and providing liquidity in the ETF segment. Additionally, the Data Explorers business historically has had success creating optimised tradable indices with providers such as Stoxx and Nasdaq that are based on availability and cost to borrow. That’s worked fairly well, and Markit has an indices business. ETFs are really tracking indices and in many ways ETFs are the new passive investment. As they grow, understanding the passive liquidity that’s tracking various indices and sub-indices is very important for investors. We’re looking at ways to evolve those trading indices and provide some transparency to customers, and there has been some interest in that side.
Markit also has a significant franchise in fixed income data, including pricing and liquidity, on both the cash side and the OTC derivative side. This is really one of the key areas of synergy for Markit and the Data Explorers business—the datasets. Drawing them together is something that we’re very focused on.
Fixed income accounts for roughly half of the $13 trillion of global securities in the Data Explorers dataset, of which just under $2 trillion are out on loan. While Data Explorers has built considerable expertise in its equities business, the fixed income data has not been customised to meet clients’ workflows, so it hasn’t really been monetised in a product sense. As a small company, Data Explorers didn’t have sufficient expertise, but with Markit, which has a heritage in fixed income, that has opened up. We’re focused on taking the Markit dataset and bringing it together with the Data Explorers dataset to provide additional products for clients. We consider this to be a big opportunity.
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