UK market data vendor Markit has agreed in principle to acquire SwapsWire, the dealer-backed electronic trade confirmation network for OTC derivatives processing. Financial terms of the deal were not disclosed.
SwapsWire is owned by a consortium of 21 derivative dealers and employs 100 staff based in offices in London, New York and Tokyo.
The service, which launched in November 2002, enables market participants to complete trade date confirmation immediately upon execution.
Markit says it plans to combine the SwapsWire confirmation capabilities with its trade processing workflow platform to provide the OTC derivative markets with a cross-asset trade processing system. The enhanced platform will have over 200 buy-side institutions, 50 dealers and 45 inter-dealer brokers as clients.
The combined business will be co-headed by Jeff Gooch, EVP and head of trade processing and valuations at Markit and CEO of SwapsWire, Chip Carver.
Commenting on the acquisition, Markit CEO Lance Uggla, says: "The SwapsWire business is highly complementary to our current suite of data, valuations and processing products, and its confirmation capabilities fit neatly with Markit's affirmation and workflow services.
"The need to automate trade processing has never been more acute, and we believe that the combination of Markit and SwapsWire delivers critical mass and will underpin the future growth of these markets, positioning us as a multi-asset class solution with strong presence in rates, equities and credit."
Markit says the trade processing business will be an increasingly important part of its overall offering to clients.
The deal is expected to complete in early 2008, subject to agreement of definitive documents, due diligence, shareholder and regulatory approval.
Swapswire is the latest in a string of acquisitions by Markit. Last month the vendor bought out International Index Company (IIC), owner of the the iTraxx indexes, and CDS IndexCo, which owns the CDX indexes. Last year the Markit acquired Communicator, a New York-based provider of automated systems for OTC derivatives trade processing, US risk modelling firm Chasen and MarketXS Holding, a Dutch provider of data distribution and trading technology.
However, Aite Group senior analyst Brad Bailey says the Swapswire acquisition will solidify Markit's role "as a powerhouse brand in the derivatives space".
"Since the start of the subprime market meltdown, derivative volumes have greatly increased. This has put tremendous stress on the ability of the developing operational infrastructure to handle the volumes in an effective way," says Bailey. "By increasing its strength in derivatives processing with the acquisition of SwapsWire, Markit is giving the market exactly what it is looking for: an effective tool to handle the processing of derivatives without the myriad errors that plague the process."