Markit keeps on turning up the numbers

WHAT’S IN A name? When the name Markit is brought up in discussion with a market participant one is still often met with the question: "Do you mean Mark-it Partners?" This shouldn’t dismay the proponents of the firm’s rebranding exercise, which took place in early 2004, because under its new or old title Markit is firmly engrained in most people’s minds.

The original name of this firm offers some insight into the driving force behind it and the strategy used to create one of the most dynamic financial services information companies. There are remarkably few firms in financial services that can boast that the majority of their workers have substantive stakes. Markit Group is valued at $2 billion and is a modern-day partnership for employees and for other key stakeholders in the firm – the investment banks whose data is used so effectively.

"I see Markit as an information exchange. We don’t have to be like a traditional exchange to meet our strategy" Lance Uggla, Markit

Mark-it Partners was also a reference to the experience of its founder, Uggla, in trying to mark a proprietary credit trading book at Toronto Dominion. He started his career trading mortgage bonds at Wood Gundy, which was later purchased by CIBC. From there he rose up the ranks to head the fixed-income division. He went on to run traded markets globally – which comprised fixed income, foreign exchange and money markets – before he left in 1995 to join TD as head of global credit trading based in London. Uggla crossed the Atlantic with a small team that he built into a significant credit trading operation; it still exists. He also ran the Europe and Asia operations for the bank. It was at this point that he saw the opportunity for collecting credit data.

"When we started the company, we said: ‘OK, let’s focus on collecting hard-to-get credit pricing data. In other words, credit default swaps, corporate bonds, loans and convertible bonds, and let’s build the definitive credit pricing data company,’" says Uggla. In addition to credit data, Markit is now the market leader in portfolio valuations and has built a serious operation in OTC derivatives trade processing.

When Uggla created the firm in early 2001 he had the blessing of his former employer. In fact, TD came into the business on a 50/50 basis, with Uggla allowed to use as capital his TD stock that had not yet vested. Notwithstanding the post-9/11 deterioration in the credit sector, which was not helped by bankruptcies at Enron, WorldCom and Parmalat, Uggla’s timing could not have been better, as the credit markets were about to embark on a remarkable boom in product innovation and investor and issuer participation.

The firm’s headquarters are in the former Refco trading floor on the south bank overlooking the River Thames, enjoying a magnificent view of the Tower of London. However, the firm started out modestly, based in a barn in St Albans, 35 kilometres north of London. It grew quickly and within a couple of years Uggla had got 12 banks – having initially hoped for just six or seven – to join his firm. The partnership split at that point in 2003 was 67/33, with the banks holding the majority stake – the rest split between private investors and Markit employees. That split was 50/50 in 2006 when the bank consortium turned down the option of going public via an IPO.

"I think our capital structure gives us a competitive edge to acquire assets," says Uggla. "We are a fast-growing company with good critical mass. We are now around 600 people globally in all the right regions. Our stock has proven to be an effective currency to use in acquisitions."

Know your client

He continues: "If you look at all the leading data providers in various asset classes, such as FX, interest rate swaps, government bonds and equities, the one common denominator is that the creators of the data are not the monetizers of that. Credit was the last bastion of unmonetized data in financial services. In exchange for equity in the company we said to the banks: ‘Let us have your data.’"

Unlike many other data companies, which rent data, Markit owns the vast majority of the data it sells on to market participants. Markit has always been a highly acquisitive company but of late the pace seems to have picked up and shifted beyond credit, where it is dominant. It also continues to grow internally.

Recently it announced an initiative run by Niall Cameron, former global head of traded markets at ABN Amro, called "know your client". KYC is a highly mechanized library of all the key documentation that banks and hedge funds require for regulatory and compliance reasons.

"If you look at most of the things we do, we are very much focused on acquiring more content," says Uggla. "Strategically, we are acquiring data across all asset classes. You can do this in a variety of ways: through a feed or via a platform, for example. Markit recently acquired Boat, which provides us with additional content in the European OTC equity derivative space. Across Markit, we now have business units covering data, valuations, processing, indices, research, desktops and feeds."

Boat is a Mifid-compliant trade reporting platform that was launched by nine investment banks in September 2006. When Markit acquired Boat at the start of this year, it was not just continuing its diversification strategy into equities.