London Stock Exchange
Group PLC’s $14.5 billion bet on financial-information provider Refinitiv Holdings Ltd. shows the growing value of a once-boring business: selling market data.
Data on stocks, bonds and foreign-exchange rates, as well as on companies and deals, are essential for the quantitative traders who have dethroned traditional money managers as the top dogs on Wall Street.
Quants need detailed data sets to fuel their computerized strategies and mathematical models for predicting market moves. Investment banks are also big buyers of financial data, using it to ensure that they are effectively executing trades for clients, among other purposes. And the $6 trillion global industry of exchange-traded funds relies on a constant stream of data to generate the indexes tracked by ETFs.
Selling data has proved attractive to exchange groups—including the LSE, Nasdaq Inc. and Intercontinental Exchange Inc., known as ICE—which have all pushed deeper into data in recent years as their core business of running stock exchanges has gotten tougher.
Last year, global spending on financial-market data, analysis and news grew 6.5%—its fastest growth rate since 2011—and topped $30 billion for the first time, according to research firm Burton-Taylor International Consulting.
“As the trading and decision-making process becomes more automated, the need for data to feed those models has become paramount,” said Andy Nybo, an analyst with Burton-Taylor, which is owned by London-based brokerage firm TP ICAP PLC.
Traditionally, exchanges made money by matching buyers and sellers and collecting fees for transactions, while collecting some additional revenue by selling the pricing data generated by that trading activity. But the transaction business tends to bounce up and down with trading volumes. That makes it a less attractive source of revenue than data sales, which are typically subscription-based, and thus more predictable.
Moreover, heightened competition has made it tougher for exchanges to make money from transaction fees. In the U.S., for instance, the New York Stock Exchange and Nasdaq dominated the stock-trading landscape two decades ago. Today, after the rise of electronic trading and the introduction of federal regulations aimed at fostering greater competition, the NYSE and Nasdaq face dozens of rival markets, limiting the fees they can charge for trades. European stock exchanges have also been forced to face greater competition.
When it comes to exchanges’ transaction revenues, “the pie hasn’t grown all that much in terms of size,” said Dan Connell, managing director of research firm Greenwich Associates. “But there are a whole lot more slices to it.”
To be sure, the data business isn’t new. Michael Bloomberg founded data provider Bloomberg LP in 1981 and became a billionaire as the firm’s terminals became ubiquitous at banks and trading firms around the world.
New York-based Refinitiv, maker of the rival Eikon terminal, is the No. 2 financial-data firm by market share after Bloomberg, according to Burton-Taylor. Both Bloomberg and Refinitiv compete with Dow Jones & Co., the parent company of The Wall Street Journal.
Refinitiv was carved out of Thomson Reuters Corp. last year, when the media giant sold a majority stake in its financial-information and terminal business to a group led by Blackstone Group LP. Last year, Refinitiv made $6.3 billion from sales of financial-market data, analysis and news, compared with $9.9 billion for Bloomberg, according to estimates from Burton-Taylor.
LSE and Refinitiv confirmed the deal Thursday. The exchange operator is paying about $14.5 billion for Refinitiv’s equity and assuming about $12.5 billion in debt, for a total enterprise value of $27 billion. The acquisition is expected to be completed in the second half of 2020, the companies said, following what is likely to be a lengthy regulatory review.
“Our customers are demanding more data and data-enabled services, and this trend will only continue,” LSE Chief Executive David Schwimmer told analysts in a Thursday conference call. He added that Refinitiv’s foreign-exchange and bond-trading platforms would be a great fit with the LSE’s more traditional trading business.
Asked for comment, an LSE spokeswoman referred to Mr. Schwimmer’s remarks. Refinitiv declined to make its representatives available for an interview.
If completed, the LSE-Refinitiv deal would be the biggest tie-up between an exchange company and a data provider. In 2015, ICE—best known as the owner of the NYSE—agreed to buy Interactive Data Corp., a major provider of bond-market data, for $5.2 billion.
Nasdaq acquired eVestment, a provider of data and analytics for institutional investors, in 2017 for $705 million. In 2014, LSE bought index provider Frank Russell Co. for $2.7 billion.
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