SunGard's 'One-Stop-Shop': Risky Step?
June 7, 2010
SunGard Data Systems, the 27-year-old privately held provider of software applications to the world's largest financial service firms, is reinventing itself.
Now, via a unit called SunGard's trading business, the company has set for itself the goal of becoming a single stop for professional trading firms to acquire not just trading technology but trade execution services as well.
"We want to provide economies of scale for our customers and become a one-stop shop for trading," says Raj Mahajan, president of the business.
Mahajan wants securities firms to think of SunGard as morphing into the trading equivalent of an Apple iPhone, providing access to an ever-expanding array of applications.
"What this means is that if you are a SunGard customer-a broker dealer, for example-and want to expand into new trading services such as dark pool access or options trading, everything you need to make the shift into a new trading area will now be at your fingertips," he said.
As one sign of such efforts, on June 1 the firm announced it had consolidated three of its trading networks-SunGard Transaction Network and BNet in the U.S. and GLNet in Europe, Asia and Latin America-in effect, nearly doubling the number of trading venues and markets its broker-dealer customers can now access and making it far easier for customers to trade on a global basis in multiple asset classes.
The consolidated service links more than 1,600 institutional buy-side firms to more than 500 brokers and 110 global markets.
There are potential risks in this, however. The move into execution services puts SunGard in direct competition with providers of alternative trading networks such as Level ATS, run by a consortium of broker-dealers, as well as some members of its traditional client base- broker-dealers, particularly those who also run alternative trading systems or crossing networks, such as Credit Suisse and Goldman Sachs.
Mahajan explains the shift as a move to better serve both its buy-side and sell-side clients at a time when markets have become ever more fragmented and trade execution ever more complex.
By the Securities and Exchange Commission's count, North America has almost 50 trading venues. You can choose among hundreds of trading algorithms for any one trade and navigate a trading landscape where high-frequency trading firms-which represent roughly 60 or 70 percent of all daily U.S. equity trading volume-spew out thousands of limit orders and cancels at the blink of an eye.
In such an environment, SunGard views itself as unique in that it provides both technology that is venue neutral and can supply competitive execution services. "No other provider has both of these two attributes," insists Mahajan.
The firm views the evolving strategy as a way to way to consolidate services in a one-stop shop format for clients eager to access liquidity more efficiently, in multiple asset classes and across borders and yet save on technology costs.
This occurs as SunGard aggregates trade orders from its order-management system customers and matches trades internally, saving customers the higher costs in routing that trade out to a host of other networks.
But the move makes it hard to define precisely what SunGard is now becoming. And it's not alone in redefining itself. NYSE Euronext, operators of the New York Stock Exchange, expect to soon generate $1 billion in annual revenue from providing technology services, primarily to broker-dealers ("Face-off: Making Better Markets,'' page 8, April 19). And broker-dealers such as Goldman Sachs are now known for both the provision of its REDIplus technology platform as well as its trade execution capabilities.
