Long before the word ‘fintech’ entered the popular vernacular, a small group of young traders and technologists, including Australian Mathew Kuppe, started a multi-bank FX matching system in Germany. They now have the backing of the big German exchange, Deutsche Boerse, and 725 million reasons to smile.
The purchase of 360T by Deutsche Boerse for 725 million euro (A$1.12 billion), consummated last month, puts the 2000 start-up into a new league to challenge its bigger competitors – State Street’s FX Connect and Thomson Reuters’ FXall. The founders and other staff had retained 30 per cent of the company during the slow build of a global business and Australasian expansion. The rest is owned by private equity interests, mainly majority shareholder Summit Partners.
Singapore-based Kuppe was initially the chief technology officer for 360T but moved to Singapore in 2006 to establish the Asia Pacific operation, including Australian sales team.
Balmian born, Kuppe is planning to build a house in the leafy Sydney beachside suburb of Bronte for his eventual return to Australia.
The deal is being billed, in modern parlance, as making 360T “the most valuable German fintech company”, Reuters reported when it was first disclosed in July. According to the German Startup Association, the transaction will make it easier for other fintech firms to find investors.
Kuppe said last week, however, that the choice of new owner was a deliberate one. “Exchanges are perceived as regulators [as most, including Deutsche Boerse, actually were for many years]. Self-regulation is in their DNA,” he said. “The core principles of any exchange are fairness and effectiveness and transparency in their markets.”
There were eight bidders in the formal sale process, with the last five all being exchanges. The final shortlist of three was chosen by 360T’s management, he said.
For Deutsche Boerse, foreign exchange was the last major market in which the company had no specialist capability. It is the biggest of several acquisitions since it bought the derivatives exchange ISE in 2007 for US$2.8 billion.
Kuppe said that 360T had spent 15 years building a reputation of being “uniquely independent” on behalf of the buyside of FX trading and the founders and management wanted to ensure that continued with their choice of owner.
“It makes 360T the first FX franchise to come under the umbrella of a global market infrastructure provider,” he said.
Foreign exchange has long been considered an opaque area of potential performance leakage for big super funds, alongside cash and, the biggest area of leakage – tax management. But those providers which have sought to reduce costs through, in effect, auctioning FX and cash transactions or changing portfolio implementation for after-tax benefits, have had a long hard slog to push their potential clients into action.
In Australia, a handful of fiduciaries such as the Qantas staff super fund, the NSW Government fund T-Corp and the multi-manager Russell Investments, have stood out as exceptions.
But after the global financial crisis, several high-profile law suits against some global banks focussed attention on losses from FX trading which appeared to be due to either slack practices by the banks, to put it kindly, or lazy oversight by their clients, or both.
Kuppe believes all this is changing. In June, the Bank of England published its ‘Fair and Effective Markets Review’ final report with the stated aim “to restore confidence in the fixed income, currency and commodities (FICC) markets”. Mark Carney, the governor of the Bank of England, said: “the age of irresponsibility in finance is over”.
The report recommends a raft of reforms at the broker, bank and asset manager levels, although some have already been implemented following the various scandals of the past few years in the US and Europe.
Kuppe, who remains in Singapore under the new ownership, at least for the time being, said: “Open access from transparent marketplaces is what everyone on the buyside should be striving to achieve.”
* Greg Bright is publisher of Investor Strategy News (Australia)