At the end of last year, Trading Technologies International was acquired by 7RIDGE, a private equity fund, after more than a year of being up for sale. The derivatives trading platform operator is widely used by banks, proprietary traders, hedge funds, and brokers to connect to the world’s major futures exchanges. The purchase not only resolved its future as a critical platform supplier but also provides the company with capital to invest in growth.
7RIDGE also appointed industry veteran Keith Todd as the new CEO of Trading Technologies. Earlier in his career, he was the executive chairman and chief executive of FFastFill, a derivatives trading system provider that was acquired by ION Group in 2013. Like Trading Technologies, FFastFill specialized in exchange-traded derivatives, and his experience running that company will be highly relevant to his new role.
More recently he founded a technology start-up called KRM22 that has developed an innovative risk analytics platform. After TT's acquisition by 7RIDGE and Todd's move from KRM22 to TT, the two companies entered into a partnership. TT bought a 25% stake in KRM22 for $6.35 million and agreed to market and distribute its risk management products.
Todd sat down with MarketVoice to discuss the acquisition of TT, the injection of fresh capital, the potential for acquisitions, and where he sees the greatest potential for growth.
MarketVoice: What was it about the TT challenge that drew you back into the ISV world?
Keith Todd: There were a number of factors that compelled me to play a role in the new Trading Technologies. First, the new Software-as-a-Service (SaaS) platform is powerful, with the potential for building on services both organically as well as through partnerships and acquisitions. Second, the firm has deep relationships with major industry participants, including not only sell-side and buy-side clients but also exchange partners. Third, I have been impressed with TT’s strong, experienced team that is bullish on the future of the organization.
MV: If we take a step back to the sales process, what made 7RIDGE the best fit for TT?
KT: TT and Tim Geannopulos [previous chair & CEO] ran an extensive sales process, and 7RIDGE was one of the participants and ended up winning the prize. What stood out, without doubt, was the structure that it could put in place to ensure independence for TT. An independent TT is good for customers, good for the industry, and it is good for the team here.
7RIDGE is a relative newcomer among private equity groups and is very much focused on technology companies that have significant growth potential. 7RIDGE has, with its fund, committed not just to acquire the company, but to provide capital for growth – both working capital and acquisition capital to build the preeminent platform and deliver on what has been the vision of TT for a while: to be the operating system of capital markets.
MV: How has the industry reacted to the deal?
KT: Reaction has been overwhelmingly positive across the board. The deal was announced in October, just days before FIA Expo in Chicago, and there was a real buzz around the event about the new TT – the independent TT – and what a great outcome it was. At the heart is a recognition from customers and prospects that TT is a critical part of the exchange-traded derivatives ecosystem, and having a secure, well-funded company that can do even more for them and make their lives easier is especially important.
There has been a move in recent years where the big players have preferred to do more with a few key platform providers, rather than hundreds of small tech companies. The TT platform is an ecosystem. It is not just providing screens, FIX connections, market access, algos, and OMS. It can also be a platform for other functions that firms need across their trade execution cycle. Recently, for example, we announced a deal with KRM22 to add risk management capabilities to the platform.
MV: Cboe and Singapore Exchange are among the strategic limited partners in the deal through their participation as investors in 7RIDGE. What role will they play?
KT: You have described their role – they are limited partners in the fund and will preserve TT's independence. Usually, limited partners are silent, but Cboe and SGX decided that it made sense to voice their support for the transaction. They also think it is a good thing that TT is independent.
Our traditional customer base is without a doubt the sell-side of FCMs, brokers, the buy-side through the sell-side, and some direct relationships, with limited direct selling to exchanges. Since the transaction was announced, several exchanges have talked to us about what we can do together to enhance the ability to bring flow to exchanges around the world. This is a positive and interesting new addition of potential revenue for TT.
MV: What does the injection of capital mean for TT?
KT: Capital is the lifeblood of business. If you have access to capital, you have the optionality to grow the business, and we are in a very privileged position to have 7RIDGE backing us to do this.
MV: Will you spend the money on making existing services better, or extending services to new markets?
KT: TT's priorities are service excellence, consolidating the business and our position in the exchange-traded derivatives market, and, in time, moving into other asset classes. On service excellence, there is always room for improvement, to make sure things are even better and more resilient. Service excellence is a springboard for growth.
In terms of consolidating our position in the derivatives space, we have done a lot of clever work in recent years with our order management system, and we have new OMS functionality coming out very shortly. We are going to be doing more work to tighten integrations of algos, and we plan to move deeper into options and add further crypto venues to the platform. In terms of other asset classes, we are currently talking to our customers to better understand which asset classes are most relevant to them today.
The injection of capital will also allow us to acquire companies. You will be seeing over the coming months a couple of small important assets being acquired. More material acquisitions will be announced later this year and in 2023 after we conduct appropriate due diligence.
MV: Can you tell us more about these partnerships and acquisitions?
KT: I cannot now, unfortunately, but our basic principle is that any service that a trader receives from a third party should be capable of being made available on our platform. I can put the recently announced KRM22 investment and distribution deal into context. This is the first partnership where a third party is integrating into the TT platform, and this is something you are going to see a lot more of going forward. There will not always be an investment in a partner – some, of course, may be straightforward partnerships where we bring features and functions to the TT ecosystem.
The initial phase with KRM22 is around market risk, in particular the pre-trade risk product area. It is better to focus and start in one area rather than announcing to the world that you want to do ten different things at once. We are currently working through technical integrations, and the partnership will expand naturally over the coming weeks and months.
MV: TT has been a top vendor of trading systems to futures commissions merchants, but their number is steadily declining. Where do you see the biggest growth potential?
KT: The data is clear that the consolidation of the FCM world continues. What is growing rapidly, however, is the number of buy-side players that they are supporting, so from that point of view, the marketplace is growing. There is also an important secondary point here. We have already started building (in addition to the sell-side relationship with the buy-side) direct buy-side relationships as our offerings expand even further. Today, for example, TT has a surveillance product called TT Score. The sell-side is not interested in the FCMs selling TT Score into the buy-side. We need to have a direct relationship with the buy-side, not to disenfranchise the sell-side but to enhance and coexist with it. There will be some more direct buy-side relationships developing as we move forward.
As I previously mentioned, we are also seeing an emergence of opportunity with exchanges to help them work on how they expand their share of global markets. And there is a geographic cut that is worth mentioning too. Currently, half of TT's revenue comes from the Americas, 40% from Europe and 10% from Asia. In five years, it is more likely to be 40% US, 40% Europe, and 20% Asia. Not because US revenues will decline, but because there is going to be more work done to reinvigorate our Asia growth strategy.
MV: You were an early advocate for Software-as-a-Service. How has the market changed in the last 10 to 20 years? Is SaaS now a given?
KT: I think it is a given. There are still people who have not fully embraced it, but fundamentally it makes sense. When you run your own software, you see, every day, things that can be done better. In the old world, if you have 1,200 customers and you need to do an upgrade, you have 1,200 separate upgrades to do. Now we have one.
In life, there will always be pockets of resistance, but we are in a fantastic position here at TT with what lies ahead.