Multiple sources familiar with the matter have told The TRADE that financial services giant State Street is set to acquire outsourced trading firm CF Global. The terms of the deal have not been disclosed and the transaction is subject to regulatory approval. According to sources, the acquisition was agreed in the third quarter of last year, but was subject to unconfirmed delays. It is rumored that the possibility of a CF Global acquisition has been on the table for several years, with a number of interested parties circling. When contacted by The TRADE, CF Global CEO Steven Blackburn declined to comment, while State Street stated that it would not comment on “market rumours”. If completed, the deal will give State Street access to CF Global’s extensive relationships in the space as a segregated outsourced trading entity. State Street recently saw its proposed acquisition of Brown Brothers Harriman’s Investor Services unit fall through, but did acquire Charles River Development for around $2.6 billion in 2018 and FX TCA startup Bestx in the same year. Outsourced trading firms offer the buy-side an opportunity to outsource any or all of their trading desk operations, as well as their back-office capabilities and technology. While this model has typically been favored by the hedge fund community, it is now gaining traction in the long-only traditional buy-side space as cost reduction on the buy-side becomes more important.
Read more – UBS confirms plans to launch US outsourced trading desk
The space has become increasingly populous in the last 18 months following the introduction of a wave of new players. UBS launched its outsourced trading desk for its US hedge fund clients in May 2021 and later appointed the former global head of equity trading at Morgan Stanley Investment Management to head it up in June. It also added to its London and Frankfurt-based outsourced trading teams in August last year with several new hires including the former head of trading across cash and derivatives instruments across instruments, Ian J Power. Several other firms including Cowen, StoneX and JonesTrading made a string of senior appointments throughout 2021 and last year to expand their outsourced offerings. Most recent was BNY Mellon, which announced a new outsourced trading offering for buy-side institutions globally in January this year, which it claims will provide opportunities for improved operational and strategic efficiencies, savings and expansion. With the market now increasingly competitive, consolidation in the outsourced trading world is expected to ramp up. Several global custodians are reportedly exploring the market, keen to leverage their custody client bases by offering lower custody fees in exchange for access to firms’ trading business, sources tell The TRADE. Custodian giants Northern Trust and UBS both champion strong custody and outsourced trading businesses. The latter reported a better-than-expected net profit for 2022 of $7.6 billion despite sharp declines in investment banking also seen by its peers. With a State Street acquisition of CF Global potentially on the cards, there could be another key player in the game, as major custodians realise they have the tools internally to make the outsourcing model pay. They are also seeking new avenues of revenues as traditional asset servicing becomes increasingly commoditised. Major custodians are reportedly looking to hoover up outsourced trading businesses to leverage against their custody client base for better returns, with several other outsourced firms reportedly up for sale.
