Why did SmartStream buy Algo’s Collateral Assets? (Premium Content)

Last week the post-trades processing vendor SmartStream purchased Algorithmics’ collateral assets from IBM. While IBM’s sale was perhaps not unexpected, the buyer was a surprise. Our first question was, what is SmartStream’s plan here? We had a chance to speak with SmartStream’s CEO and Head of Product Strategy to find out.

We interviewed Philippe Chambadal, CEO and Darryl Twiggs, Head of Product Strategy at SmartStream. Here’s a short version of the conversation:

SFM: What is SmartStream for our readers who don’t know you?

SmartStream: We are in the post-trade processing space including cash and liquidity management, exception management and corporate actions processing. We have been in this space for over 10 years.

SFM: why buy Algo’s collateral assets?

SmartStream: Our strategy has been to dominate the middle and back office then move to the front office. We are responding to dramatic bank needs to reduce their costs. We are also looking at regulation including Dodd-Frank, EMIR and Basel III that are starting to have their impact. These regulations require extra levels of reporting, an area where SmartStream excels. Since part of this includes collateral, it is a natural extension for us move in that direction.

SFM: what didn’t you buy that IBM has retained?

SmartStream: IBM retained the Algo risk mitigation and analytics part of the business. That’s much more of a consultative space, which is where IBM is positioned.

SFM: Have your clients been asking you to add collateral management functionality?

SmartStream: We have regularly received inquiries about collateral management as we are well known for our cash management solutions. Cash really isn’t just cash, its liquidity. Now we have the full capability. We see now a greater drive than ever from the front office for reconciliations and exception management. This is where we can provide greater services and operational sense. We look to eliminate costs at the front end of the trade life cycle. We are also finding that our clients want us to provide services to their underlying clients. Our solutions are all ideally placed to be a portal between the bank, their client, brokerage and trading operations.

SFM: Do you have an existing collateral offering that this replaces?

SmartStream: No, its a value-add. It bolts directly into our utility-style industry solutions. There is a lot of drive now towards utility models in collateral. We want to move into that space as we have all the other tools that are required. Collateral management isn’t enough. You need multiple capabilities including dispute resolution and the portal. That’s what we add to the Algo scenario.

SFM: What are your plans for Algo’s development from here?

SmartStream: We are taking advantage of and adding into Algo a number of our existing components. Last year we launched a new exception management layer to gather, collate and resolve all exceptions. This fits very well with collateral management. We will target the front office and the client portal concept.

SFM: Do you see collateral management becoming a utility?

SmartStream: The utility piece is an important part of collateral management. Banks need to move fast to market. That means we need to provide a managed service. Its very much in the delivery where all counterparties see the same piece of data for automation and validation. We already deal with every type of instrument. SmartStream and Algo compliment each other with our global footprints and support. This is a very good fit.

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