OTC Markets rescues Edgar Online, plans ‘comprehensive’ US disclosure data service

Another week, another exchange buying a data vendor. Two weeks ago, TMX Group acquired events data provider Wall Street Horizon. Last week, OTC Markets snapped up filings and financial data vendor Edgar Online in what may be a sign that even smaller marketplaces are getting in on the act.

The economic drivers for this continuing trend are well established, says Jesse Forster, senior analyst in Coalition Greenwich’s equity market structure and technology practice. “Exchanges get the opportunity to supplement more volatile transaction revenues with more stable data revenues, while their clients among brokers and investors are demanding more robust datasets, like Edgar filings. So, it becomes a no-brainer for exchanges to move into that data space.”

But this particular acquisition potentially offers OTC Markets more strategic options than recent deals that have made larger exchange–data vendor combinations a running trend.

“We’re not the same scale as some other exchanges, so we need to be more nimble,” says Matt Fuchs, executive vice president of market data and strategy at OTC Markets.

First, the deal brings with it brand recognition and “significant customer list, including a lot of retail customers” as well as other exchanges, and 14 technology, operations, and customer service staff. In addition, it offers potential savings because the exchange had been a customer of Edgar Online for many years, and now—by virtue of owning the business and source data—no longer needs to pay licensing fees for the data. That opens up a wealth of possibilities for expanding its products that use the data.

“First, we’ll focus the product set on filings and the financials associated with those filings, then see what we can add to it,” Fuchs says. “One of the things we bring to the table is that we have filings and financials from non-SEC firms that file with us … and we have bank reporting data from non-SEC reporting banks, so we can take that data in and set up a comprehensive disclosures dataset for the US market.

“That’s unique data that companies report only to us, and a lot of people probably don’t realize is out there.”

Secondly, OTC Markets can use its own distribution network and data ecosystem to expand the reach of Edgar Online to more of its trading participants and partners. And third, now that it owns the data, it can start to use that in more of its proprietary products.

“We’ve used a lot of Edgar Online data in products we’ve built over the past five to 10 years for compliance and analytics—for example, to give brokers analytics on over-the-counter (OTC) and small-cap issuers, and our Blue Sky product,” which the market operator acquired with the purchase of Blue Sky Data Corp earlier this year, he says. “So now we have bought the source data for a lot of things we do. That makes it possible to do more with that without having to pay again for the source.”

While not wanting to put a firm timeframe on any new developments, Fuchs says OTC Markets now needs to “get into the weeds and figure things out,” and will start working on integrating the datasets as soon as possible.

“Our goal is to get as much information and value out of the data we now have to help people understand the securities that we trade on our platforms. The more information we can give to people on those securities and issuers, that can only be helpful and enable traders and investors to make better decisions,” he says. In addition, the data should also appeal to companies issuing securities on OTC Markets’ platforms. “If we can help issuers tell more of their story, that also helps provide value to them.”

Opportunity knocks

Fuchs says that when OTC Markets learned that Edgar’s former owner Donnelly Financial Solutions planned to sunset the Edgar Online business, the market operator jumped at the chance to acquire it. The final price tag was about $3.5 million in cash—a fraction of the $70 million price tag that RR Donnelly, the parent of Donnelly Financial Solutions, paid for Edgar Online in 2012.

“We’re a small company, and this was not a huge acquisition by any stretch,” Fuchs says.

David Frankel, a strategic consultant who served as chief marketing officer at Edgar Online prior to its acquisition by RR Donnelly and as general manager of the business unit for two years following the acquisition, believes the business has “landed in the best place,” and that Fuchs and OTC Markets CEO Cromwell Coulson will be able to leverage the asset to generate a healthy return on their investment.

In fact, Edgar Online and OTC Markets have had a long-standing relationship where Edgar packaged and distributed data on companies traded on OTC Markets’ marketplaces.

“We always felt that we could do more with their data,” Frankel says. “There’s data out there that can be structured to help investors make better decisions—especially around OTC-traded companies.”

For example, being able to present apples-to-apples structured data on exchange-listed companies alongside securities traded on OTC Markets could provide greater transparency to investors, allow them to perform better comparisons and analysis, and make OTC securities a more attractive option for investors with specific portfolio and investment criteria.

“This makes a ton of sense for OTC Markets. The Edgar Online brand is still big and has a lot of equity to it that they can leverage,” Frankel says. “In addition, Edgar Online has a data structuring organization in Rockland, Maryland, that takes data from financial statements and puts it into Edgar Online’s database, so it could be valuable in structuring data on OTC companies that the market could get value from. It has the ability to distribute filings, and it also has existing clients of its Edgar Pro and I-Metrix platforms among family offices and retail investors that are probably a good match to OTC Markets’ client base, so they could use those tools to start to market to that client base with enhanced analytics.”

One source familiar with the companies also notes that the Edgar Online brand is still well known, and even suggests that OTC Markets could adopt the name for its data business and use the better-known brand to expand and grow its data offering.

Forster agrees that the deal offers OTC Markets great potential to strengthen its position and broaden its base.

“The current management of OTC Markets has done a good job of changing peoples’ perceptions around OTC securities. Adding another level of transparency via Edgar Online can only make things even better,” Forster says.