Nasdaq–Adenza: A look at the tech

Exchanges are no longer solely in the business of market listings and market data—a reality that’s become increasingly clear as tech-focused acquisitions by exchange groups are announced year after year. In the last few years alone, the London Stock Exchange Group acquired Refinitiv and Tora, Cboe made five tech vendors into a new business unit, and, most recently, Deustche Börse nabbed SimCorp for $4.3 billion.

Exchange giant Nasdaq is also charting its own tech-focused roadmap under CEO Adena Friedman. Since Friedman was named CEO in 2017, the exchange operator has made more than five acquisitions, slowly transforming it into a software provider so as to diversify its listings business. Last week, Nasdaq added to that shopping spree with the proposed acquisition of Adenza, a combination of vendors AxiomSL and Calypso Technology, for $10.5 billion—a number that has left some observers scratching their heads.

Previous acquisitions by Nasdaq include Verafin (2020, $2.75 billion), an anti-money laundering (AML) and anti-fraud platform that has helped build out Nasdaq’s market surveillance software business; Sybenetix (2017, price undisclosed), a surveillance provider with its flagship product Compass that utilizes behavioral analytics and cognitive computing to target surveillance challenges for asset managers; Quandl (2018, price undisclosed), an alternative data provider; and eVestment (2017, $705 million), a buy-side analytics provider. Adenza, should the deal be approved by regulators, will mark Nasdaq’s largest acquisition to date and expand its capabilities in regtech and risk management to complement existing internal solutions.

Tal Cohen, president of market platforms at Nasdaq, says Adenza will round out the suite of tech solutions it has been building over the last six years.

“We want to solve our clients’ toughest, most pressing challenges when it comes to the full trade lifecycle of trading and operations. Verafin and our surveillance solutions give us more conviction and confidence around regulatory and risk as well. And we do offer a risk platform through our market tech business today, so these are not necessarily new businesses to us,” he says.

As with any expensive acquisition that won’t be evened out by immediate profits, there will be pressure to make cuts—i.e., staff—which can lead to disruptions in product development and integration. One former employee of AxiomSL, who is still in contact with their old colleagues, indicates that while executives are hopeful about the opportunities Nasdaq ownership can present, there’s also an air of apprehension. “They are having a hard time understanding the tech [integration] part, especially when they are paying 18x revenues,” says the source.

Adenza, formed in 2021 by private equity firm Thoma Bravo, brought together 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.

However, AxiomSL and Calypso were not merged into one product when Adenza was formed and remain separate vertical tech stacks, and Cohen says they will remain separate platforms under Nasdaq. Both fintechs were founded in the 1990s, and with such long histories, industry onlookers and participants tell WatersTechnology that they have 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,” says a former AxiomSL executive. They say 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 add.

Vinod Jain, a senior analyst at Aite-Novarica, says combining the two platforms made sense from a data perspective. “It’s always a natural fit to combine a trade booking platform with a regulatory reporting platform because the regulatory reporting platform takes in information from the trade booking [and] trade processing platforms,” he says. In other words, integration can create a seamless data flow from one to the other.

Under the Nasdaq umbrella

Once the deal clears any regulatory hurdles and closes, Adenza will sit alongside Nasdaq’s surveillance and marketplace technology, under the Market Platforms business line. Tech solutions currently make up 72% of Nasdaq revenues, according to stats given to WatersTechnology last year by Nasdaq.

A former Nasdaq employee says that in conversations they’ve had with old colleagues, everyone sounded “relatively onboard” with the tech piece of the acquisition.

“I think it’s how big Adenza is compared to the traditional tech business at Nasdaq—they’re bringing like 2,000 employees with them, so it really beefs it up. It’ll be a heavy focus on the integration aspects and probably some power dynamics, I suspect,” they say, adding this will help Nasdaq gain better access to the buy side.

When it comes to potential benefits for all parties, Cohen points to a number of areas, including product expansion. “Calypso has grown up in the OTC cash and derivatives space; we’ve grown up in the exchange-traded space—equities, equity options, etc.—so our risk solutions are geared toward exchange trading, and their risk solutions are geared toward the OTC market.”

He says Nasdaq is considering embedding their current exchange-traded risk platform into the Calypso platform to form an integrated solution that covers a broader range of asset classes.

Additionally, Nasdaq currently maintains a strong presence in Asia, particularly across financial market infrastructure (FMI) players, Cohen says. “We sell the full trade lifecycle to those players. For those who we sell the full trade lifecycle to—mostly post-trade solutions or trade solutions for exchange-traded assets—we can now come back in and say we have a collateral management offering and an OTC offering so we can broaden our penetration with certain client segments, like the FMIs in Asia-Pacific.”

On the other side of the coin, Calypso has a strong presence in the European banking system, particularly with tier-twos and tier-threes. Cohen says that presence will benefit other business lines like Verafin, which stands to gain a foothold in Europe. On the surveillance side, he also sees a fit between AxiomSL and current Nasdaq surveillance solutions. “If we put them together, we can offer a broader, more comprehensive, [and] attractive offering not only to the sell side, but also to the buy side, as the circumference of regulation expands,” he says.

Legacy shift

For all the potential that an acquisition could unlock, there’s one glaring difference between Nasdaq’s current tech solutions and Adenza: the cloud.

Nasdaq has been aggressive on its move to the cloud. Last November, it started shifting its North American markets to the cloud in a phased approach and anticipates moving another one this year. In comparison, AxiomSL and Calypso are largely on-premises solutions. Cohen estimates they are 80% on-premises and 20% cloud.

A source familiar with the workings of Adenza’s platforms tells WatersTechnology that makes sense for systems banks have been using for decades. “You really can’t get rid of them. They have so many branches and tentacles into so many different parts of the bank, and they’ve transformed on top of them over the years. Good luck ever getting that out of the bank!”

On top of the technical challenge, it can be incredibly expensive for a bank that’s so intertwined to get out and go with a different provider. Jonathan Thursby, CEO and founder of startup trade repository and regtech provider Kor Financial, says different versions of software installed at separate client firms can also impede delivery.

“That really slows down your ability to drive value through your solutions, because now you are handicapped based off the on-premises version that a client is running,” Thursby says.

Some sources interviewed for this story are skeptical of the pair’s prospects for retaining business if Nasdaq decides to bring the platforms fully onto the cloud. Matt Smith, CEO of compliance tech and data analytics shop SteelEye, says he would be “very surprised” if Nasdaq took an approach that uprooted Adenza clients’ on-premises systems.

“I think if they did, with the revolutions going on in the fintech ecosystem, it would absolutely expose them to revenue loss because people will look at it and say, ‘If you’re moving me to cloud, why would I not look at what is out there?’” Smith says.

Nasdaq’s Cohen says migrating the platforms to the cloud and modernizing them is indeed part of the exchange group’s roadmap, and one element aiding such efforts will be the fact that AxiomSL and Calypso were not merged into one product when Adenza was formed.

“Both Axiom and Calypso are vertical, integrated technology stacks in a single codebase. Very modular, very flexible, and they do releases on monthly and quarterly timelines, and they follow agile best practices from an engineering perspective,” he says. “Most of the other players in this space have cobbled together solutions. This one has been homegrown—built from the ground up—and we love it.”

Client feedback solicited by Nasdaq on the proposed deal has indicated that there may be more usage of AxiomSL than Calypso. “Axiom is like the MSCI of regulation,” he says. “Axiom is almost like a verb for regulators; have you been Axiomized?”

Over the course of reporting this story, several sources referenced other acquisitions made by Nasdaq, including alternative data provider Quandl and Sybenetix (which operated Compass, a buy-side surveillance platform), and wondered whether these products have been wound down since Nasdaq does not promote those specific brands anymore. According to spokesperson for the exchange, these units are alive and well but have been rebranded more fully under the Nasdaq moniker.

It’s possible then that the decades-long name recognition that Calypso and AxiomSL have enjoyed, even under the Adenza moniker, will also be noticeably absent not too long from now.

With additional reporting by Anthony Malakian