Ion Forced to Split Broadway, Keeping FX

Trading systems giant Ion will split up Broadway Technology—the rival it acquired in February—to allay concerns the deal would erode competition in the market for fixed income trading software.

An initial review by the UK’s Competition and Markets Authority concluded on July 7 that a months-long probe was warranted. In a further report, published on August 7, the CMA revealed Ion’s proposed remedy—an undertaking to keep only Broadway’s foreign exchange (FX) business and find a buyer for the firm’s fixed income franchise.

The CMA’s report says this “may allow a suitable purchaser to compete effectively in the supply of sell-side front-office systems for fixed income electronic trading, worldwide and thus restore the competitive constraint provided by Broadway that would otherwise be lost following the merger.”

It’s not known whether a purchaser has already been found. Ion did not immediately respond to a request for comment.

The CMA’s decision will be welcomed by some banks, who have watched Ion’s trail of acquisitions transform it into one of the world’s largest front-office tech vendors. With dealers under pressure to cut costs in recent years, negotiations with Ion have become a growing source of frustration.

One e-trading executive describes the planned sale of Broadway’s fixed income assets as “a big defeat” for Ion.

The CMA’s report says the divestment will be achieved through “the sale of the entire share capital of Broadway … to a suitable purchaser and the transfer back to Ion of the Broadway FX business.”

A buyer will be deemed suitable if it satisfies criteria laid out in the CMA guidance. A suitable purchaser must have the “financial resources, expertise, incentive and intention to maintain, operate and develop the divestment business as part of a viable and active business in competition with the merged entity in the relevant market.”

Owing to the fact that certain members of Broadway’s staff including senior management are not transferring as part of the proposed undertakings, the CMA says it will also need to “ensure that the nominated buyer has the necessary expertise to address any technical and/or management gaps from within its own organisation.”

There are not many firms that tick these boxes, according to an executive at one trading software vendor. “There are only a handful of firms that spring to mind, and all of these will see how the fixed income market is evolving, with banks increasingly building their own technology modules which support differentiation, then plugging the gaps with specialist fintechs,” he says.

Last year, a group of European and UK banks began assessing the viability of a DIY alternative to Ion.

Vendors including Axe Trading, smartTrade, and TransFICC are among those that compete with Ion. All of them are smaller and more specialised. In its July statement, the CMA described Ion as “by far the largest” supplier of fixed income software, with Broadway and Bloomberg as its only significant competitors.

TOC Tick

The CMA says Broadway’s fixed income business comprises its brand, share capital, staff related to supporting its fixed income business, current fixed income customers, software including the TOC—Broadway’s core platform which forms part of its programming interface—the current Broadway offices, facilities, IT, and infrastructure, as well as Broadway’s hosting service, Greyspan.

The deal would leave Ion with Barracuda FX, a well-regarded order management system that was acquired by Broadway in April 2019.  

Under the proposed undertakings, the following parts of the Broadway business would be transferred back to or remain with Ion: certain members of Broadway’s management; the Barracuda FX business; Broadway’s FX-only customers; certain Broadway staff required for the FX business; and software that is required to serve Broadway’s FX customers.

The purchaser of Broadway’s fixed income business would also need to grant Ion a licence to use the TOC. However, this arrangement would be time-limited to no more than three years and for use exclusively in respect of FX, “to facilitate the transfer of Broadway FX customers”, and Ion would not have access to the TOC source code. In addition, in the transition continued use of Greyspan by certain Broadway FX and Barracuda FX clients would be permitted.