Nasdaq reshuffles tech divisions post-Adenza

The story of capital markets is a story of evolution. Burgeoning asset classes, emerging technologies, and new regulatory requirements mean that the financial institutions of the 21^st century are not the same as those of the previous one.

Over the past six years, exchange operator Nasdaq has purchased six tech outfits, including the anti-money laundering and fraud platform Verafin, alternative data provider Quandl, and eVestment, a buy-side analytics provider. Last June, that M&A spree was capped off by the company’s largest acquisition to date: the addition of Adenza, a combination of vendors AxiomSL and Calypso Technology, for $10.5 billion.

Originally formed in 2021 by private equity firm Thoma Bravo, Adenza combined AxiomSL, a back-office risk management and regulatory reporting provider, with Calypso Technology, a front-office trading, risk, and processing platform. Thoma Bravo bought Calypso in 2020 from private equity firms Bridgepoint and Summit Partners, which acquired the fintech back in 2016. That same year, Thoma Bravo also acquired AxiomSL before pairing it with Calypso to create an “end-to-end solution” for markets.

That “end-to-end solution” has now officially joined the Nasdaq family in an integration that executives say only took about five months, a decidedly short timetable for any tech company to bring in a new asset. The result is now a different Nasdaq that is prioritizing fintech as the “central nervous system” of its operating model.

Internal remodel

Prior to the addition of Adenza, Nasdaq’s business was broken down into three divisions: capital access platforms, anti-financial crime, and market platforms. “The design and intention of that was to cross-pollinate best practices and make sure we were cross-pollinating innovation between our markets and our market technology business,” says Tal Cohen, president at Nasdaq.

The first division, capital access platforms—which includes listings, investor relations, ESG, indices, and data & analytics—stays the same. However, the other two divisional structures have changed. Market services now includes all 17 markets operated by Nasdaq, including US equities and options, as well as carbon markets and the European businesses. The third and final unit is the newly established financial technology division. 

When we thought about it, AxiomSL is synonymous with being the market leader on the regulatory side and Calypso is synonymous with solving trade management problems for the biggest and smallest banks across the globe

Tal Cohen, Nasdaq

Under the financial technology division sit two subdivisions: regulatory technology and capital markets technology. Within capital markets technology sits Calypso, markets tech and the global connectivity business, which Cohen describes as the center point for Nasdaq’s partnership with AWS. Rounding out regulatory technology is AxiomSL and the surveillance business.

Despite being “combined” under the name Adenza, AxiomSL and Calypso were not merged into one product and remained separate vertical tech stacks. On the heels of the acquisition last year, Cohen told WatersTechnology that Nasdaq planned to keep them as separate platforms. Today, the Adenza name has been sunsetted and the two platforms are referred to as Nasdaq Calypso and Nasdaq AxiomSL.

Cohen, who now heads both the financial technology and markets services divisions, says the decision to return to the original names came down to their brand strength across financial services. “Adenza is a relatively new name, it came together about 18 to 24 months before we purchased the assets. But for the past 20-plus years, AxiomSL and Calypso have built strong brand equity,” he says. “So when we thought about it, AxiomSL is synonymous with being the market leader on the regulatory side and Calypso is synonymous with solving trade management problems for the biggest and smallest banks across the globe.”

Both fintechs were founded in the 1990s, and with such long histories, industry onlookers and participants told WatersTechnology last year that they had become integral to firms across Wall Street. “The whole idea was to have an end-to-end solution for the market where middle-office risk and trading risk would get addressed,” said a former AxiomSL executive. They said AxiomSL’s longstanding presence in the market captured 90% of tier-one banks over time, as they recognized the vendor’s ability to handle complex data involved in the regulatory reporting process. The infusion with AxiomSL allowed Calypso to enter a new segment of the market—the tier-one client list—a “technically very difficult” feat, as one solution focused on the trading book while one solution covered the banking book, they added.

In splitting the financial technology business into two subdivisions, Cohen says the capital markets business was created to solve clients’ toughest operational challenges while regulatory technology leans toward a trend of more regulatory costs and obligations as well as heightened standards. “It is global, it is broad, and it’s going downstream,” he says.

Overall, he says the mission of the last six years has been to offer front-to-back full trade lifecycle solutions on a global basis. “Now, with Calypso and AxiomSL, I think we’re in a great position to do so,” he says.

Value additions

With any acquisition, a company not only gains new technology but new people. Coming over with the 2,000-plus Adenza employees were Gil Guillaumey and Ed Probst. Guillaumey was head of strategy for capital market solutions and Probst was head of strategy for regulatory solutions. Today, they haven’t strayed far from those roles, now respectively serving as head of capital markets technology and head of regulatory technology at Nasdaq.

Earlier this month, Nasdaq held its first financial technology conference in New York. Probst says the feedback from the 170 clients that attended was overwhelmingly positive as they were presented with Nasdaq’s long-term vision for the financial technology division.

“It’s super critical that they feel like they’re partnering with a provider that’s going to continue to invest, that has the capability to do so—not just the willingness, but the ability—and the infrastructure in place to invest to ensure these products continue to be market leaders as they are today,” Probst tells WatersTechnology.

He says the operating model under Adenza saw benefits of “creating cohesion in a fragmented ecosystem.” In other words, they were solving challenges that really couldn’t have been solved well independently in the past. Probst says one example of that is work that was done to connect the two systems “from an information connectivity perspective” to solve Basel requirements.

Regulatory hot topics like Basel III and Basel IV are certainly the type of use cases that clients will look to both Calypso and AxiomSL to serve, says Guillaumey. “Basel III and Basel IV is one of those elephant-in-the-room type of affinities where AxiomSL is in charge of all the regulatory calculation and associated reporting and Calypso provides many of the inputs that are required for counterparty credit risk and market risk,” he says.

Sitting under the Nasdaq umbrella also allows existing customers to access asset classes that might not have been in reach before. Guillaumey says that one of the main reasons clients were using and buying the Calypso platform was to consolidate across asset classes in a front-to-back stack. Historically, the Calypso platform had grown up in the over-the-counter cash and derivatives space, and Guillaumey says clients had started to ask about access to exchange-traded derivatives (ETDs). Now sitting beside Nasdaq products and solutions, they can immediately get access to ETD experts in the field of margin calculation and margin requirements. There are also benefits to Nasdaq from touching the OTC derivatives space.

Development is currently underway for a connector between Nasdaq’s real-time clearing platform for CCPs and Calypso’s collateral management solution, which would simplify workflows and bring efficiencies to customers using both products.

And with any platform, there’s always potential to build more. As Calypso and AxiomSL are regarded as on-prem solutions, Nasdaq sees an opportunity to bring them into the cloud. Cohen told WatersTechnology last year that migrating the platforms to the cloud and modernizing them is indeed part of the exchange group’s roadmap. Today, he says the project to integrate the code stacks was not a large undertaking.

“We’re not going to undertake a big project that is going to have an inward focus—we’re going to be very outward focused. And the way we do that is with cloud and some of the expertise and experience we can bring to the table that effectively accelerates the deployment of Calypso and AxiomSL in a really modern way,” he says.

The result is credibility on the cloud during client conversations, Probst says, something that wasn’t necessarily the case pre-Nasdaq.

“Throughout the year, our largest customers can literally be importing new software on a daily basis. If you’re operating in 40 to 50 countries, and you’re doing 2,000-odd regulatory disclosures or risk calculations, you’re onboarding every single day and promoting into production and testing every single day. That’s a disruptive element of any organization and there’s huge costs associated with it, there’s huge risks,” he says. “If you truly want to bring efficiency to your organization, the only way to do that is to go onto the cloud of the organization who brings you that software [and] have us automatically deploy for you, automatically regression test for you, so that that service is continually up to date.”

M&A muscle

Brad Bailey, research director at Burton-Taylor International Consulting, says that these days, exchanges are taking a different shape as the growth of data and analytics and the value-add of technology becomes more apparent. “Today’s exchange is an almost entirely different animal than that of a decade or even eight years ago,” he says.

Cohen says each acquisition over the past six years has enabled Nasdaq to build its integration muscle. With each one, Cohen says himself, chief executive officer Adena Friedman and chief strategy officer Jeremy Skule have asked three key questions when deciding whether to add the asset to Nasdaq: are they the right owner, do they have a right to own this asset, and can they accelerate the strategy that already exists?

Nasdaq is by no means the only exchange operator in the M&A game. Last year, Deutsche Börse bought trading technology vendor SimCorp for $4.3 billion. The year before that, Intercontinental Exchange made the largest purchase yet for the exchange operator when it bought mortgage servicing provider Black Knight for $11.9 billion.

Cohen says they’ve taken note of what other exchanges have done, and determined that they want the financial technology division to sit not at Nasdaq’s side, but at its center. “We looked at this, and we said this is going to be the center of Nasdaq, it’s going to be the heartbeat of Nasdaq,” he says. “It’s the central nervous system which everything runs across, and we’re going to conjoin it with our markets business.”