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NEX Stop, The Future Of Markets

Sometimes the machine needs a reboot.

Such is the case with NEX Group, the former ICAP group minus the ICAP voice brokerage business. By now, we know that NEX’s CEO Michael Spencer looked to the future and decided that voice brokering wasn’t it. That doesn’t mean it isn’t valuable. But it just isn’t what he wants to do with his time or shareholder money.

So what’s left? Plenty actually, although it took me a while to figure it out. In a simplistic sense, the company is rolling all of its trading platforms, technology companies and venture capital arm into one firm. From there, they can sell all of those things – EBS BrokerTec along with its menu of complementary technology, like Traiana, Trioptima, Enso and Reset. The VC can add the pieces it needs along the way.

Where those companies used to work and run largely as siloed operations under a loose ICAP umbrella, they now are firmly in the fold – aimed at offering solutions all along the transaction chain. What is also interesting about the approach, however, is that from a technology services standpoint, NEX is happy to grab solutions that are decidedly not NEX products or services if it makes the client happy.

As such they’ve taken on some of the identity of modern exchanges, which do many things besides count pennies for every trade and cleared contract. In the words of Nasdaq Vice Chairman Sandy Frucher: “We used to be an exchange that owned technology. Now we’re a technology firm that happens to own exchanges.” The Intercontinental Exchange used to be an exchange that acquired other exchanges and clearing houses. Now it is a technology company that acquires other data and technology companies, and runs a few exchanges too.

That’s the model in some respects. But today’s technology is allowing NEX and many other players to make the move in a much more seamless way than before. Cloud services, machine learning and leaps in the speed and distribution of data are making technology buys and implementation somewhat easier. That is the future many see – a world where banks, brokers and trading firms can seamlessly connect to technology, upgrade systems and keep on rolling. The reality is that many firms still run on legacy systems. They like what they’ve got because it works.

But attitudes are changing as internal IT budgets shrink and regulations are burying old systems. Why build a new risk management platform in-house when you can buy something from NEX that also works with EBS BrokerTec and other platforms?

So, can they become the Amazon of the financial markets? Spencer would say unequivocally, yes. Can he change the siloed culture into one happy team that makes customers even happier? We shall see. He sees the future. After 30 years in the business, he says it’s time for NEX to look at the next 30.

(See our interview from FIA Boca with Michael Spencer)

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Kharouf is CEO of John J. Lothian & Co. and editor-in-chief of John Lothian News (JLN). He edits the John Lothian Newsletter, MarketsWiki and MarketsReformWiki.