The deal to integrate Global Banking and Securities Transactions' (GBST) client management product, Advisor, and Molten Financial Solutions' market data system, Siren, to provide a low-cost retail desktop solution, is putting pressure on market information system provider Iress Market Technologies.
GBST processes about half the transactions (valued at some U.S. $830 million per day) on the Australian and New Zealand stock exchanges for the majority of broker-dealers and last year deployed its multimarket, multicurrency trading platform, GBSTShares, in Hong Kong at ITG (part of the Posit group) and its subsidiary, Hoenig Securities.
With a market cap of some $139 million, Iress (whose major shareholders include the Australian Stock Exchange) continues to lead in providing Australian and New Zealand market information in desktop applications for retail and institutional broker-dealers. Iress further consolidated its position (85 percent retail market share) in January 2002 with the acquisition of Reuters' Beacon service, leaving Iress as virtually the sole provider.
However, the GBST-Molten alliance could pose a significant threat if it can roll out an embedded data service for retail equities and succeed in a distribution strategy that would also lower the barriers for entry for other data vendors.
"If it can provide a product that offers at least half of the functionality of Iress, but for a much lower price, it could win a significant share of the retail advise space, which represents about half of Iress' subscriber base," said Julian Mulcahy, an industry analyst at Smith Barney.
Also, the GBST Advisor workstation can support a number of data vendor solutions, giving brokers a choice, he said. This means smaller data firms and new entrants can also distribute to GBST's client base of 45 stockbrokers. "It has significantly lowered the barriers to entry for new players," he said.
Iress CEO Peter Dunai agrees that market data in its raw form could become a commodity characterized by strong competition and low margins and Iress' focus is to embed the data in other applications. Iress has implemented such integration for institutions and broker-dealers, where institutions not only access pricing, research and trade allocations using their Iress terminals, they can also route orders through Iress' STP order management system, IOS, directly onto the market. Iress is the only vendor to provide transaction integration, which has achieved universal take-up by institutions.
"Our goal for the last six or seven years in every part of our business, not just institutional, is to value-add at every opportunity. We view our business not as market information but as a desktop tool that incorporates market data as a comprehensive adviser interface," Dunai said.
Dunai agrees the Siren-Advisor product could pose a more serious threat as an integrated solution, than other competitors.
"The issue is that if they do the integration, then it is a valuable product, but we have yet to see any evidence of any integrated products other than our own. We're not complacent, we just haven't seen anything yet," he said.
Siren, Molten's market data solution, is being fully integrated into GBST's applications, which are used by the majority of Australian and New Zealand stockbrokers, said Stephen Lake, CEO at GBST. "This will enable a faster and seamless processing of trades from Siren onto the ASX, and support straight-through processing," he said.
Also, the integrated Siren-Advisor product will match 80 percent of Iress' data functions, and is being tested at three sites and will roll out in a few weeks, Lake said. GBST and Molten will initially target 1,500-2,000 seats and expect to capture this 20 percent to 25 percent of market share in the first 12 months.
Dunai believes competitors will need "deep pockets" if they are to gain a substantial presence and warns that margins achieved by Iress through scale would be cut by low-priced entrants.
"While we might appear to have attractive margins in our business, those margins come about through market share and relatively fixed cost structures--not from overcharging," Dunai said. "Even if somebody grabbed a substantial proportion of our revenue base even at our charges, let alone with less charges, they wouldn't make any money."
Smith Barney's Mulcahy argues that new low-cost technology could enable new entrants to lower market data fees, but vendors will succeed or fail on their own merits. "GBST is simply providing access to the market. The onus is on the market information providers to come up with a viable business model. While the barriers to entry have been lowered and new technologies have made it easier to develop products, they still need to win over customers. In addition to price and functionality, factors such as service and reliability are crucial."
Demand for market data has diversified, said Molten Managing Director Simon Carmody, and this has created a viable opportunity for their market entry.
"Our view is that most of this process of information display is a utility function, but we don't believe it's priced as a utility function and we're trying to bring value back into the pool. Everyone from an institutional trader down to a private investor puts a different value on data as they price that data and, therefore, pricing needs to be tiered," he said.
"Even inside an institutional broker, a research analyst or a corporate finance analyst is going to price that data differently than an institutional dealer who is counting on it every second. Our solution is user-configurable and that will bring the price down dramatically because broker-dealers will only pay for the applications and data they actually use," he said.
Molten selected technology from Melbourne-based Paritech as the basis for Siren. That technology (now branded Siren) was selected by leading online broker Commonwealth Securities (CommSec) and, according to Carmody, is a fully networked solution already live on 210 CommSec seats.
"It has proven to be a robust product," he said. Molten will also market the Siren product independently of GBST, as a stand-alone solution, and target non-GBST broker-dealer clients who use the Iress product.
As part of its value-added strategy, Iress will seek to broaden its desktop applications to provide a back-end independent solution to enable integrated retail wealth management capability for the industry's estimated 8,235 broker-dealer advisers and 16,892 financial planners, and thereby intermediate transaction flows as it has with institutions on the sell side.
To that end, Iress considered a merger last year with leading financial planning software provider, Melbourne-based IWL Group, but that deal fell through. Iress recently announced agreements to purchase Xplan technologies and upgrade Xplan planning software over the next two years. "There has been a gradual merging of services offered by broker-dealer advisers with those offered by financial planners as one broad category of wealth management advisers. We're keen to have tools in both spheres," Dunai said.
For its part, IWL dominates the financial planning market and claims some 6,000 planners use its VisiPlan software. National Australia Bank recently confirmed it has signed with IWL for VisiPlan and this, according to IWL's CEO Otto Buttula, would add another 4,000 users. "VisiPlan was chosen by National over the existing Xplan offering," Buttula said. IWL will also compete head to head with Iress in the retail broker-dealer market, added Buttula.
IWL recently acquired Perth-based broker-dealer Sanford partly to capture its large base of financial planners, including institutions AXA, ING and dealer group Count Wealth. Sanford offers white-label retail equity services. At stake is Sanford's Project Nile, a wealth management solution currently in testing at a number of retail broker-dealer sites. According to Buttula, Nile features integrated market data with STP capability.
Buttula also said GBST may distribute Project Nile as one of the embedded solutions in its GBST-Advisor product, effectively provisioning another competitor to Iress in half the retail broker-dealer market.
"GBST is, in fact, a distributor not a manufacturer of their front-end product," Buttula said. "It's not at the forefront of our minds at the moment, but GBST is more than happy to distribute our product."
GBST's Lake confirmed that support for multiple vendors was core to GBST's product strategy.
"Integration of financial products into GBST Shares and GBST Advisor has been an ongoing part of GBST's development. These include real-time CMA [cash management accounts] and margin lending. We have recently integrated Ausmaq's wholesale managed fund service and will be adding research within the next month. Retail advisers can access all these services from their desktops," Lake said.
Buttula was cautious but confident about Iress' proposed entry into the management business as a competitor to IWL.
"Iress is a well-funded competitor but it's a tougher market we're getting into and there's a lot of uncertainty," he said. "We're the only system that's proven to be scalable and I don't see a lot of people taking risks with new software when there's no need to. Getting onto the financial planning software market shouldn't be seen as easy. It's far more difficult than getting into the market information business. I'd rather be in our situation than in Iress," he said.
Buttula also didn't rule out another merger attempt with Iress.
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