LSEG looking to acquire Refinitiv

By

-

July 30, 2019

LSEG LOOKING TO ACQUIRE REFINITIV.

[Update 1st August: Official LSEG press release – click here]

After a flurry of rumours the London Stock Exchange Group (LSEG) has confirmed that it is in talks to acquire Refinitiv, a leading global provider of financial data and infrastructure.

According to LSEG, under the key headline terms it is expected that LSEG would acquire Refinitiv for approximately US$27 billion, with new LSEG shares to be issued as consideration in full for Refinitiv’s equity value, after adjusting for Refinitiv’s net debt and other adjustments. The parties anticipate that the transaction would result in the Refinitiv Shareholders holding an approximately 37% stake in the enlarged group and less than 30% of the total voting rights of LSEG.

Refinitiv was founded in 2018 when Thomson Reuters sold a 55% stake in its Financial & Risk (F&R) unit to US private equity firm Blackstone Group LP. Thomson Reuters retains a 45% stake. The company has an annual turnover of US$6bn with more than 40,000 client companies in 190 countries.

As owners of FX trading platform, FXAll and majority owner of the Tradeweb trading platform, Refinitiv also provides access to leading sources of liquidity in FX and fixed income trading. David Cumming, CIO for Equities and Head of UK Equities at Aviva Investors commented on BBC Radio 4’s Today Programme that the deal was “logical, but with some degree of risk attached” and would increase their exposure in the US and allow LSEG “to diversify into FX and fixed income”. He did however add a note of caution in saying that LSEG was “betting the farm” on this deal.

The majority of commentators seem to think this is a “win-win” situation, but some warned of regulatory hurdles ahead and not to discount the potential disruption of a hostile bid for LSEG by the likes of Intercontinental Exchange (ICE).

©BestExecution 2019

[divider_to_top]

News review : Simcorp report reveals the challenge of data management

By

Ian Rycott

-

July 29, 2019

SIMCORP REPORT REVEALS THE CHALLENGE OF DATA MANAGEMENT.

Although regulation has been a constant theme over the past ten years, buyside firms had mixed views over the impact, according to the third annual 2019 European InvestOps Report: Achieving Operational Agility and Outperformance.

Some saw it as a driver for lasting change because it has increased transparency and tackled reporting challenges due to legacy systems. However, the speed at which regulation is coming into force, was seen as a burden with 62% of buyside heads of operations yet to start projects for the incoming Uncleared Margin Rules (UMR). This is despite an estimated 12-18 month implementation process and with the new rules coming into full scope next September.

Commissioned by SimCorp and independently conducted by WBR InvestOps, the report surveyed 100 buy-side heads of operations from asset management, pensions and insurance firms with AUM above €10bn, across the UK, France, Germany and the Netherlands.

The report also found that despite many operations leaders working towards building a golden source of data, the lack of a centralised data fount still remains one of the biggest challenges for the front office. This is impacting both their control over and also access to key data sets for investment decision making, causing a crucial difference between generating alpha and a losing position.

It is also perhaps unsurprising to see over half of the firms surveyed, are struggling from data issues given the combination of disparate, best of breed systems and manual processes comprising much of today’s alternative solutions. What is not expected though is that the report found these firms are considering limiting exposure, a risk to alpha generation, rather than countering the operational challenges.

However, the report did not just highlight the difficulties. It noted that despite these issues as well as new regulations, geopolitical uncertainty, fee compression and M&A, European buyside firms have seemed to turn a corner, with a new forward-thinking outlook. The report found a renewed and progressive drive to growth and consolidation, with 41% also set to adopt multi-asset enabled investment platforms.

David Weaire, head of operations, investment, Investec Asset Management and one of the report’s contributors, says: “Getting the foundation right is crucial for investment managers as they embark on the journey towards supporting investment at optimal efficiency. Having accessible, standardised data available to those making daily investment decisions is a key tool, to optimise how these choices are made and improve the chance of finding alpha.”

©BestExecution 2019

[divider_to_top]

News review : SGX signals greater push into FX

By

Ian Rycott

-

July 29, 2019

SGX SIGNALS GREATER PUSH INTO FX.

It has been reported that SGX, the Singapore exchange, is planning an aggressive expansion into foreign exchange markets over the next five years in an attempt to strengthen the country’s grip as Asia’s largest currency trading hub. The exchange, which is dominant in stocks in Singapore and equity derivatives across the region, made a move into foreign exchange in March by buying an initial 20% stake in BidFX, a trading venue used by hedge funds and banks, for $25m. It also has an option to purchase a controlling interest.

BidFX, a subsidiary of order and execution management systems specialist TradingScreen, provides hedge funds, asset managers and banks with a front-end trading platform, as well as a liquidity aggregator tool for FX spot, swaps and forwards for G10 and Asian currencies. At the time, SGX said that the investment is part of its strategy to build out its FX offering, particularly in FX futures, which the exchange operator first introduced in 2013. In the last quarter to March, SGX handled 5.3m of forex futures contracts, a 48% hike on year on year figures but still small compared with the 50m of equity derivatives traded in the same period. Turnover at its derivatives units account for nearly half of group revenues.

©BestExecution 2019

[divider_to_top]

News review : Barclays joins the Eurex OTC clearing bandwagon

By

Ian Rycott

-

July 29, 2019

BARCLAYS JOINS THE EUREX OTC CLEARING BANDWAGON.

Barclays has become the first European bank to provide Eurex over-the-counter (OTC) clearing services to US clients. It is being offered through its US registered futures commission merchant.

This latest development demonstrates the continuing increase in US demand for Eurex’s OTC services. This year has already seen Citi become the first US-based FCM followed by two US-based Swap Execution Facilities (SEF) – Bloomberg and Tradeweb which granted US clients the ability to directly submit their executed swap transactions to the clearinghouse.

Tim Gits, Head of Fixed Income Sales Americas at Eurex said that “Barclays is a great addition to our EurexOTC Clear offering and a testament to the growing interest we are experiencing in the US. The growth we have seen from US institutions since receiving CFTC approval in late 2018 has been very encouraging, and the number of FCMs and clients in the pipeline is very promising.”

Eurex Clearing received approval from the Commodity Futures Trading Commission (CFTC) in late 2018 to offer customer swap clearing in the US in addition to the clearing services for futures already provided. In this context, it launched a legal framework that complies with the LSOC (Legally Segregated Operationally Commingled) requirements required by the regulator for the clearing of customer swap transactions.

The move represented a gesture of goodwill by the CFTC which has been at logger-heads with the European Union over proposed rules that could impede cross-border trading between the two markets.

Stephen Li, Barclays Head of ADS Americas added that the main drivers were to meet client demand. The decision “demonstrates Barclays’ commitment to provide choice and meet clients’ needs for an alternative liquidity pool in euro interest rate swap clearing.”

Barclays has been busy for the past four years reorganising its business lines including the recent rebrand of its Agency Derivatives Services business to Prime Derivative Services. This included the integration of its derivatives clearing and execution services with the prime brokerage division

©BestExecution 2019

[divider_to_top]

News review : Algomi and MarketAxess jockey for position

By

Ian Rycott

-

July 29, 2019

ALGOMI AND MARKETAXESS JOCKEY FOR POSITION.

Competition is intensifying among electronic bond-trading platforms as they roll out new products that offer greater integration of the technology that is transforming their trading landscape. Trade-data aggregator Algomi launched ALFA, a feature that enables traders to execute trades directly on platforms Liquidnet and Trumid Financial through its own interface. Algomi is hoping to be first to market with a bond execution-management system, or EMS, akin to those that have existed for more than a decade in equity markets.

Scott Eaton the CEO of Algomi said “As a market neutral provider, we are delighted to announce this initiative with Liquidnet and Trumid. Fund managers can now easily action and execute decisions based on the front-end data aggregation we provide. This is a major step in creating an efficient workflow process that leads to trading with increased speed, improved liquidity and efficiency in the market.”

About 60% of US bond-trading desk heads say that currently offered EMSs are fit for equity trading but not well suited to fixed-income markets, according to a study conducted this year by conference operator Worldwide Business Research.

Meanwhile, MarketAxess, the dominant electronic bond-trading venue, launched a new portfolio trading solution for its 1500 client base. The aim is to streamline the trading experience by allowing participants to trade on both price and spread for hundreds of different bonds with flexible negotiation options. It also allows them to submit inquiries to leading liquidity providers for improved competitive pricing and to connect directly to an order management system provider. Last but not least they will gain access to market data and pricing analytics to optimise portfolio pricing and execution quality.

The solution integrates MarketAxess’ proprietary AI-powered algorithmic pricing engine, Composite+^™throughout the trading workflow. It leverages a universe of over 24,000 bonds from the public FINRA Trade Reporting and Compliance Engine (TRACE) and proprietary data from the MarketAxess trading platform and TRAX. This combination of transacted data from multiple sources improves pricing accuracy for complex portfolios, even with more illiquid instruments.

The new tool will initially be available for price and spread disclosed-trading and will expand into MarketAxess’ anonymous all-to-all Open Trading protocols, bringing further global liquidity options. Portfolio Trading is expected to launch in the Autumn of 2019.

Chris Concannon, President and Chief Operating Officer, said “Improving trading efficiency and the certainty of execution for clients is our top priority. Our Portfolio Trading protocol will help address both priorities by creating a streamlined solution for institutional investors to market and transact large, customised, fixed income portfolios that ultimately demonstrates best execution with competitive pricing and industry-leading analytics.”

©BestExecution 2019

[divider_to_top]

News review : ESMA takes a balanced view on periodic auctions

By

Ian Rycott

-

July 29, 2019

ESMA TAKES A BALANCED VIEW ON PERIODIC AUCTIONS.

Market participants heaved a sigh of relief after The European Securities and Markets Authority indicated it would not introduce stringent restrictions on periodic auctions which have come under fire for allegedly undermining stock market transparency rules.

The European regulator has been reviewing these venues which allow fund managers to trade larger blocks of shares while limiting the amount of order information revealed to the market before trades take place. They are seen as an alternative to anonymous venues known as dark pools although some critics most notably Markus Ferber, an architect of MiFID II who sits in the European Parliament, complained that they were a “blatant attempt to undermine the EU rulebook”.

His main objection was that they were being used to mimic dark pools, which had caps placed on them by the new regulation in a bid to move more trading onto traditional stock exchanges, which offer more pre-trade transparency.

They have grown in popularity since MiFID was implemented with research from Tim Cave, a research analyst at TABB Group showing that volumes initially surged at MiFID II’s inception but have since settled at around 2.2% of the order book market. There are currently seven periodic auctions although Cboe Europe has the lion’s share of volumes.

Operators were worried that ESMA would take a hard line but instead the regulator issued a report that said it only intended to set out guidelines for ensuring the auctions meet MiFID II rules on price formation and transparency.

ESMA said it will act to ensure the auctions are used to establish prices for shares rather than simply matching orders at prices formed on primary stock exchanges. It also called on operators to notify traders when auctions begin for “genuine pre-trade transparency”.

Mark Hemsley, chief executive of exchange Cboe Europe, described the regulator’s report as “pretty balanced.” He said: “Periodic auctions have been given a relatively clean bill of health. Now that the regulatory uncertainty is starting to lift, they may grow accordingly. We need to see what guidance emerges from the regulator now but the framework is pretty positive.”

Cave added: “ESMA adopted a considered approach to a new and complex area of Europe’s equity market under MiFID II.”

©BestExecution 2019

[divider_to_top]

News review : Testing the crypto waters

By

Ian Rycott

-

July 29, 2019

TESTING THE CRYPTO WATERS.

London-based venture studio 20:30 made the news as the first UK company to successfully complete the tokenisation and issuance of their equity as part of the UK Financial Conduct Authority’s (FCA) Sandbox 4. The next step is to go live for their first third-party client, via TokenFactory.

“TokenFactory is a platform that allows buyers and sellers to meet in the primary issuance process. Issuers can be hand-held through a modular approach to creating legal documentation, building in governance models, accounts and audit models,” according to Jack Thornborough, Chief Compliance Officer of 20:30.

“It consumes this data, generates the tokenised instruments and then our next generation data room allows the offer to be exposed to investors that are on the platform. Our aim is to make raising capital for start-ups and SMEs incredibly cheap and incredibly fast, by leveraging powerful technologies like AI and blockchain.”

20:30 tested the waters in April with its TokenFactory product and settlement of the tokenised securities took place on the blockchain, with subscriptions in sterling and matching via the LSE’s Turquoise platform. 20:30 successfully raised capital via the process, which is now complete, and exited the Sandbox in May 2019.

The process was not without its complexities, and highlighted many of the current regulatory challenges inherent to tokenisation of securities on a more industrial scale. It was also notable for the collaboration between both incumbents (including the law firms Allen & Overy and Latham & Watkins as well as the London Stock Exchange), and pioneering fintech start-ups, such as 20:30 and Nivaura, a firm specialising in workflow automation of the middle and back-office processes involved in the primary debt and equity issuances.

From a legal perspective, Stuart Davis, an associate at law firm Latham & Watkins, said that part of the complexity is due to the fact that UK legislation has been drafted without digitisation in mind. For example, the Uncertificated Securities Regulations 2001 requires a system that allows for the digitisation and transfer of securities to be registered, and there is currently only one registered entity that meets these requirements – Crest.

In addition, the Companies Act 2006 mandates that shares that are issued in physical form may only be transferred through use of a stock transfer form, which is a manual (i.e. non-digital) process, creating additional barriers to full tokenisation of equities.

Avtar Sehra, CEO of Nivaura, says solutions were developed to address some of these issues. “While for tokenised bonds we are able to simplify the structure to a simple tokenised security, where the token is the bond,” he says.

“For equity we needed a pass-through structure where a Nivaura nominee entity held the legal title on the equity, and passed through all the beneficial interests to a new security token that is issued. The new security token was not actually the equity, but a claim on the benefits of the equity. This structure is very similar to a depositary certificate model.”

©BestExecution 2019

[divider_to_top]

Elevating Low Touch

By

Terry Flanagan

-

July 23, 2019

Institutional brokers layer personal service onto the technology stack.

Scoot over, algorithms, smart order routers, and AI.

In an equity electronic trading business that tectonically shifted from human- to machine-driven in recent decades, human brokers are making a comeback of sorts. Wall Street desks that handle and route the trades of investment managers still need to be on the cutting edge of technology, but the personal touch has emerged as a differentiating factor in leveraging that technology stack to achieve the most efficient execution.

“Customization has come back into fashion,” said Mark Louka, Executive Director, Systematic Trading for J.P. Morgan Asset Management, which manages about $2 trillion. “It allows us to very quickly do things with partners who do a lot of good things on their own, but don’t necessarily do exactly what we want. It allows us to quickly build what we want, and leverage partners’ technology in doing so.”

Many trades that went ‘low touch’ years ago are staying that way — a broker probably won’t be any better than an algo at managing a small purchase of a liquid stock. It’s the off-the-beaten-path buys and sells — the large institutional transactions, sometimes with specialized instructions, in less liquid securities — that need finesse and collaboration.

“In terms of customization and workflow improvement, a lot of it is around block trading,” said Bojan Petrovic, Executive Director, Quantitative Equity Trader, at J.P. Morgan AM. “As you get bigger you need to trade more blocks and efficiently source end-of-day liquidity, specifically in the last 15 minutes” of the trading day.

In an October 2018 report, Greenwich Associates estimated that 38% of institutional equity investors were asking their brokers for customized algos, and that number would rise to 48% this year.

Bespoke work

Brokers are trying to stay ahead of the curve.

“We do a lot more customization and bespoke work, to understand the customer’s intraday and multi-day trade profiles and try to engineer the best outcome for the client,” said Todd Lopez, Head of Americas Cash Equities at investment bank UBS. “We are applying a high-touch type of service to what has historically been a low-touch product. People still make a difference in this business.”

Men and women traders’ raison d’être addresses the core challenge of institutional investors, i.e. quietly finding counterparties for outsized trades. That task has been complicated in recent years by fragmented liquidity due to a steady increase in the number of exchanges and trading venues.

There’s no going back to the simpler times when the NYSE-Nasdaq duopoly was the only game in town: just this past May, the U.S. Securities and Exchange Commission approved The Long-Term Stock Exchange as the 14th U.S. equity exchange. That’s in addition to dozens of active off-exchange trading venues, each with their own protocols, order types and unique strengths and weaknesses.

“As the marketplace gets more complex with a growing number of alternative sources of liquidity, how do we access this liquidity in a manner that benefits the end client?” said Peter Sheridan, Head of Electronic Trading , Americas at UBS. “To this end we are seeing more large asset managers partner up with high-touch sales traders, who have the skill set to put together a block transaction in a way that might not happen in an automated fashion by combining technology solutions with a human touch.”

Neither high touch nor low touch trading is going away, nor are the two functions merging. But market participants note a discernible convergence underway. “They are still distinct channels, albeit expectations from clients are evolving, and they’re becoming more similar over time,” Lopez said. “For example the low-touch world is starting to offer principal liquidity in the workflow, and the high-touch desk is becoming increasingly proficient in leveraging low-touch strategies.”

Broker technology is not a commodity, but it’s also not the differentiating factor it was a decade ago when the current state of the art was first making its way onto trading desks.

Consultation, customization
“There is some technological differentiation among brokers, but it’s not large in magnitude,” J.P. Morgan’s Petrovic said. “So one way firms compete is to consult with us on our own execution and give us feedback on more optimal ways to trade. Some firms are very responsive and have the resources to deploy to give us the customizations that we want, quickly. Others don’t have either the budget or the tools and resources, so they can struggle with customization.”

“Our flow doesn’t look like every other (broker) client’s flow,” Louka said. “So when they analyze our flow and come back to us with how they can build customizations from there, that is what differentiates trading partners for us.”

Size and scale is an advantage for buy-side desks as well as for brokers. “We can leverage more tools and resources from our counter parties which smaller firms may not have access to,” Louka said. “In addition, we form conjectures about the future returns of stocks that we trade, based on the performance and behavior of our custom work. The net result is the ability of our team to not only manage more money without increasing trading cost, but also provide unique trading insight.”

Tech Q&A: Petra Kass, Google

By

Creating Digital

-

July 23, 2019

Traders use Google not just for searching the latest sports trade or economic stat but also to help store and save data to the ubiquitous cloud.

Perhaps the most widely known made up word in history, Google, is a part of everyday lexicon and even the trading universe. Traders use Google not just for searching the latest sports trade or economic stat but also to help store and save data to the ubiquitous cloud. It is here where Google has been touching the capital markets in a new and different way, said Petra Kass, Head of Capital Markets Marketing for Google Cloud. And it is here where the firm wants to make its mark.

Before joining Google, Kass led marketing for a portfolio of solutions, including market data, regulatory compliance, commodity trading and risk management, vehicle finance, tax reporting, treasury, payments, and consulting services. She also led the marketing campaign for the joint FIS and Google Cloud Platform bid to the SEC and SROs to build the Consolidated Audit Trail (CAT).

Kass took a few moments to speak with Traders Magazine’s editor John D’Antona Jr. on the state of cloud adoption in the capital markets, security, costs and its alignment with Aite Group.

Traders Magazine: Describe the current state of cloud adoption among capital markets firms? If low, why? If high, why?

Petra Kass: When we first started talking about cloud with firms a few years ago, the conversation mainly revolved around reducing costs. Now, we’re diving deeper into streamlining processes and optimizing infrastructure spend. For firms who take cloud as a game changer, it’s an opportunity to rethink a business. They’re focused on answering questions like: What can we not do today that we could, if we had the resources and access to computational power? Do we have a full view of new capabilities that new technologies, such as AI and ML can offer us? How do we better serve our clients? How can we further reduce risk?

When customers come to Google Cloud, they’re looking to us as a true partner. It’s not a traditional vendor relationship. Collectively, we brainstorm on solving business challenges and how our tools can help solve and reduce these problems. For example, we may rethink the entire technology and process architecture to break data silos based on what kind of data and reporting various stakeholders need. As a result, our customers understand their own respective customers and risk profiles better, creating APIs and becoming more agile. It’s about bringing the best of both worlds to ultimately create a more transparent and more efficient financial market.

Our customer Two Sigma spun up quantitative research workloads, scaling up when necessary and only paying for the compute seconds they use, without having to grow their server farms. We also support the entire capital markets ecosystem through our partner network. We recently partnered with Deloitte to bring new solutions to customers, with financial services and capital markets being a key industry. Additionally, Dow Jones DNA is both a Google Cloud Platform customer and technology partner. As a customer, it leverages our platform to allow capital markets firms scalable, flexible access to its 30+ year premium news archive. As a tech partner, Dow Jones along with Quantiphi support capital markets solutions such as developing custom Knowledge Graphs for gathering insights around network effects and business impacts of global events.

TM: What is the biggest hurdle for these firms to migrate to the cloud? Tech costs? Security? Some other factor?

Kass: Migration from one environment to another can always be challenging; it takes a lot of planning and consistent communication. For example, some financial institutions have long histories, with countless of mergers and acquisitions or with a large legacy estate. That means transitioning all workflows and data can be a major undertaking.

Regulators are also working through questions around how regulatory and compliance requirements apply in a cloud environment. As regulators become more familiar with the technology, and these kinds of regulatory questions are clarified, financial businesses will feel more confident in moving to cloud.

Finally, technology and change management cost concerns often accompany discussions associated with modernizing legacy systems. Firms must ask themselves: “how much money are we losing in unearned revenue because we can’t access the right data or don’t have the right tools or insights to serve our existing customers?”

At the end of the day, cloud’s advantages such as speed and transformational power, outweigh the short-term challenges of initial onboarding or migration. When you look holistically at the opportunities, it becomes easier to see both the financial and timesaving benefits of cloud infrastructure.

TM: You partnered with Aite? Why them?

Kass: We have an ongoing relationship with Aite, which is one of the many analyst firms we work closely with in the industry.

TM: Briefly discuss your recent white paper commissioned via Aite. What findings stood out? Workload? Cultural changes?

Kass: We partnered with Aite, who surveyed 19 capital markets firms so we could learn how they are adopting cloud, big data analytics, AI and ML to drive growth, performance and savings across front, middle and back offices. The data revealed three distinct stages of the cloud migration maturity:

Infrastructure Optimizers: The first step on the public cloud journey, where firms focus on migrating specific workloads to save costs.

Cautious Strategists: Firms build on the success of their initial public cloud migrations, and begin to change the way they develop technology to increase cost savings and start taking advantage of capabilities only available on public cloud.

Transformative Innovators: Firms shift to a fully public cloud-enabled mentality, and fully leverage the flexibility and agility of the public cloud to build industry-changing solutions and attract top IT talent.

While firms may be at varying stages of the cloud journey, there are lessons that can be learned at each stage:

Communication and transparency are key to making the goal of changing the firm’s DNA to become more innovative ultimately possible.

Measuring and monitoring progress in a formalized manner is important in order to learn from failures and successes together (both from the business and tech sides).

Capital markets firms can learn a lot from what the technology sector started a decade ago, in terms of software development methods and fostering and governing innovation.

In Data Centers, Lease Beats Own

By

Terry Flanagan

-

July 23, 2019

Cloud enables firms to store and access data in a flexible, “capital lite” manner.

Buy or lease?

The eternal economic question regarding homes and vehicles has come to corporate data centers. For many companies who need data centers for fast and reliable access for their technology infrastructure, the answer is skewing decidedly toward the more flexible option.

As is often the case with a business trend, there’s a disruptive technology behind it. With data centers, the emergence of cloud and its model of on-demand computing resources has enabled more companies to eschew the traditional ownership model and instead lease the space they need.

“Years ago a proprietary data center was a good thing to have, but as workloads have migrated to the cloud, they are slowly becoming obsolete,” said Bill Fenick, Vice President Enterprise at Interxion, a provider of co-location and data-center services. “So you might have this asset that’s not highly connected, sitting out in the middle of nowhere. It becomes a burden on the balance sheet.”

Last year, Intuit sold a data center in Quincy, Washington to H5 Data Centers, after moving much of its computing infrastructure to Amazon Web Services. The business and financial software concern reportedly booked a loss of as much as $80 million on the deal, and then leased back space in the 240,000-square-foot facility.

Large financial-services firms that have offloaded data centers in recent years include Bank of America, CME Group and Credit Suisse. “A proprietary data center is no longer strategic, nor is it a differentiator,” Fenick stated.

Need obviated

Many proprietary data centers, also known as enterprise data centers, were built when cloud was either not around or still in its infancy, and expanding workloads could only be managed with internal resources. So firms built their own data centers on the expectation that they would grow into them.

That didn’t happen. In the cloud, servers, storage and applications are managed remotely through the internet, which obviates the need for more space. More practically, cloud gives corporate CTOs options, just as sharing-economy stalwarts WeWork and Uber give their customers options to do what they need without tying up significant capital.

With Gartner projecting the cloud services industry to grow exponentially through 2022, proprietary data centers may not be white elephants quite yet, but their utility is way down. Fenick said infrastructure occupancy rates that were about 80% a decade ago are often more like 30-40% today.

Data centers need not be relics from the last century for proprietors to want to sell; some facilities have gone on the block just four or five years after being built. That’s according to Jim Kerrigan, Managing Principal of North American Data centers and a 20-year veteran of commercial real estate brokerage.

“The question is always whether to own or to lease,” Kerrigan told Markets Media. “Ten years ago we saw a lot of building of (proprietary) data centers, but we have not seen that recently.”

With regard to pricing, Kerrigan said that enterprise data centers have been selling for as little as $100 per square foot, partly depending on what terms the seller leases back space for. That’s a small fraction of the $2,000 to $2,500 per square foot it cost to build the data centers.

“The assets are not necessarily distressed, but they are no longer a core part of a company’s business,” Interxion’s Fenick said. “Companies are looking to migrate workloads to the cloud. They can put what they cannot migrate into a public cloud, into a private cloud, which means a highly connected data center with cloud presence and connectivity.”

Re-platforming

‘Re-platforming’ to the cloud via co-locating in a data center enables firms to reclassify their data storage and utilization costs from capital expenditures to operating expenditures. Advantages of OpEx versus CapEx include cost transparency, streamlined business cash flow, and perhaps most important, the flexibility to easily switch to something else if the current solution ceases to be the best solution.

“Co-location offers a flexible platform that allows organizations to experiment with different options, without any large capital investments and at a fraction of the operational costs,” said Jan-Pieter Nentwig, Director Enterprise, Interxion. “As their cloud journey is underway, firms can shut down data-center assets where it makes sense.”

In addition to reduced capital requirements, quicker delivery and more flexibility, legacy corporate data centers are often not located in the markets where they need to be to provide low-latency solutions, Cushman & Wakefield Vice Chairman Randy Borron wrote in a 2018 blog post.

“More and more companies are shifting to cloud platforms instead of managing their own data centers,” Borron wrote. “Thus, cloud and colocation will continue to grow as more corporations deploy hybrid cloud IT solutions, and we expect to see fewer corporate owned and managed data centers.”

.cls-8{fill:#fff;stroke-width:0px;}

LSEG LOOKING TO ACQUIRE REFINITIV.

SIMCORP REPORT REVEALS THE CHALLENGE OF DATA MANAGEMENT.

SGX SIGNALS GREATER PUSH INTO FX.

ALGOMI AND MARKETAXESS JOCKEY FOR POSITION.

ESMA TAKES A BALANCED VIEW ON PERIODIC AUCTIONS.

TESTING THE CRYPTO WATERS.

.cls-8{fill:#fff;stroke-width:0px;}