IHS Markit Cancels Derivatives Unit Sale

IHS Markit has decided to take MarkitSERV, its post-trade processing business, off the market, weeks after the unit announced a major overhaul of its technology base, after failing to secure acceptable terms with potential acquirers.

The information provider had said in May that it would be looking for a buyer for MarkitSERV at the same time as it announced its acquisition of Ipreo, a data analytics specialist.

Sometimes described as the nerve center of the post-trade market in derivatives, MarkitSERV handles 130,000 derivatives processing actions per day and is connected to over 2,500 buy-side firms and 100 dealers.

The move had marked a significant shift for IHS Markit, with CEO Lance Uggla saying that he did not see synergies between its derivatives post-trade processing activities and its other areas of focus as being “substantive.” The decision to sell MarkitSERV, he continued, had been partly prompted by a number of “incoming calls” about the business in the preceding months.

However, on a third-quarter earnings call with investors, held on September 25, Uggla said that the firm had failed to find an acquirer to purchase the asset on acceptable terms.

“We’ve decided the best financial and strategic outcome for IHS Markit, at this time, is to keep our MarkitSERV business,” he said. “We completed a disciplined and comprehensive sales process with both strategic and private equity parties, and could not reach agreement at a sufficient value for the asset with an ongoing acceptable commercial relationship.”

While the derivatives post-trade market remains a competitive area, it has been subject to a certain degree of consolidation of late. NEX Group, which operates Traiana, TriOptima and other competitive services, for instance, announced its sale to the Chicago Mercantile Exchange Group in March, a deal that is expected to close by the end of the year.

Although IHS Markit will stay in the post-trade processing game, for now, Uggla said that he did not expect to be “highly acquisitive” in the space. He also implied that the firm may be open to fresh offers for the business in the future, given that Markit’s view is that there is room for further consolidation in post-trade.

“We don’t see ourselves being highly acquisitive within derivatives processing. But we do think we made a lot of statements to the marketplace that there are opportunities for the strategic consolidation of certain assets,” he said. “And if some of the strategic market participants wish to discuss or participate in those types of activities, we’re going to be open to doing that. But we’re also quite open to managing the asset.”

Spokespeople for IHS Markit referred requests for further comment to Uggla’s remarks and declined to comment further.

The decision to keep MarkitSERV also comes at a time when the business is preparing to completely overhaul its technology base with a new, cloud-based platform, TradeServ. WatersTechnology reported exclusively on the impending launch of the platform several weeks ago, which will eventually replace DSMatch and host MarkitSERV’s other platforms, including Markit Trade Manager and MarkitWire. On September 10, they officially went live with the first rollout of TradeServ, focusing on foreign exchange (FX) for non-deliverable forwards (NDFs).

That platform, which grew out of a multi-year project within MarkitSERV, codenamed “Voltron,” will move into FX options in early 2019 and credit later down the road. The addition of credit is dependent on the launch of the Depository Trust and Clearing Corp.’s new Trade Information Warehouse, built on distributed-ledger technology. WatersTechnology understands that this is tentatively planned for early next year, possibly stretching into the second quarter.