Nasdaq buys London-based regtech company Sybenetix
Acquisition of software to spot rogue trading is the first deal by chief Adena Friedman
Nasdaq has agreed to buy a London-based software company that uses artificial intelligence to sniff out rogue traders, as the US group seeks to acquire cutting edge technology under its new chief executive.
The cash purchase of Sybenetix for an undisclosed sum is the first since Adena Friedman took over as Nasdaq chief in January, providing a glimpse at her likely focus.
“Getting into more advanced technologies . . . is a key part of a our strategy,” Ms Friedman told the Financial Times. “The regtech [regulation technology] part of our market technology business will continue to expand.”
Nasdaq has diversified beyond its traditional exchanges business as the profitability of equity trading has shrunk over the past decade with regulatory change and heightened competition.
Sybenetix was founded eight years ago by Taras Chaban, former fund manager at the hedge fund group GLG, and Wendy Jephson, a behavioural scientist, and is backed by venture capital firms Summer Capital, Collinio Capital and Yarrow Capital.
Its software learns the behaviour patterns of individual traders at an asset manager or hedge fund and can raise the alarm for their employer when they do something out of character — something designed to make it more precise in flagging up suspicious trading and avoid a lot of costly false alarms.
For example, a trader who has avoided securities for a long time after suffering a loss on them suddenly dives back into a losing position. This triggers an alarm in the monitoring system and sends an alert to the fund’s compliance team.
The takeover of Sybenetix comes amid a wave of interest in using technology, such as cloud computing, artificial intelligence and biometrics, to help the financial services industry meet a tsunami of regulation unleashed since the 2008 banking crisis.
In Europe, the incoming Mifid II rules for investment services are set to force banks and fund managers to collect much more data on trading for regulators than is currently required, creating an opportunity for companies such as Sybenetix.
Mr Chaban and Ms Jephson said in a statement: “Being part of Nasdaq will provide enormous growth opportunities for Sybenetix’s surveillance technologies and will also accelerate new product development for the buyside industry.”
The group will sit in Nasdaq’s market technology business which contributed 12 per cent of the group’s net revenue in the first quarter and grew by 18 per cent, the highest growth rate of the company’s business lines.
Its other divisions are: market services, which includes the trading business and accounted for 37 per cent of revenue in the quarter; corporate services including listings which was 27 per cent; and information services such as selling data which was 24 per cent.
“We do see market technology as being a high grower for us over time,” Ms Friedman said. “Assuming I am right, it would become a bigger contributor.”
Nasdaq, along with its partner Digital Reasoning, has developed its own “Smarts” product which it sells to regulators and exchanges to help them monitor for misconduct such as insider trading or market manipulation. It plans to integrate Sybenetix’s algorithms into that business, to accelerate its expansion into the asset management industry.