For some firms today, being young has its advantages. Dash Financial might just be one of those young and agile companies that can take advantage of the currents that are pushing and pulling the industry.
Later this quarter Dash is expected to complete its acquisition of LiquidPoint, Convergex’s options brokerage and technology business, thus giving the combined firm 13 percent of the equity options and index options market volume. That’s more than double the current marketshare Dash Financial has quickly built since it launched in 2011.
Peter Maragos, CEO of Dash (soon to be renamed Dash Financial Technologies), said the deal is the right fit for the firm, melding the financial technologies that Dash has built along with LiquidPoint’s technology and customer base.
What is more interesting about the deal is the environment that has made it work. Regulation, for all if its warts and wants over the past 8-plus years, plays a part in this. Maragos points out that the massive deleveraging by banks and others since the passage of Dodd-Frank and European regulation, has pushed some players out of the equity options business. Some of this is due to risk and some due to capital requirements that have forced banks to think long and hard about just where they make the most money.
And given that they are few profit centers within banks, many have downsized their IT departments substantially as well. Banks that used to develop and run their own proprietary execution, connectivity and risk management platforms are now looking to firms like Dash and others to run that part of their business, if they haven’t abandoned it entirely. In the equity space, profit margins are so thin that many non-tier 1 banks are rethinking that business as well, as technology demands are making it difficult for many of them to compete.
“If equity or options routing is not your core business, you have to give serious thought to whether or not you want to continue in this space,” said Maragos with no apologies.
The days of banks and brokers serving as supermarkets to customers is coming to an end, in his view. Firms that are cutting edge with technology, connectivity, transparency and cost are going to grow in the coming months and years.
And so the cycle goes in the financial markets. Small boutique firms that grew to become everything to everybody are getting back to the business lines that make money. Smaller firms that can add value to customers with the latest and greatest specialty services are taking those pieces of the pie. Dash aims to take a larger piece of that pie with LiquidPoint.
Who else is hungry?