Ion’s Wrists Slapped in Probe of Broadway Deal

Trading systems giant Ion Group has received a telling-off from the UK’s competition watchdog as part of an ongoing probe into the firm’s acquisition of rival vendor Broadway Technology.

On April 23, the Competition and Markets Authority said Ion had failed to comply with a notice calling for “information and documents” to be provided by midnight the previous day. The time available for the CMA’s initial probe—originally set to conclude on June 17—will be extended as a result.

The slap on the wrists appears to bear out the words of one industry source, who has already given evidence in the probe.

“I can confirm the CMA is indeed investigating the merger seriously,” says the source.

The Ion-Broadway deal sparked industry concern when it was announced in February—market participants argued it would leave banks with limited viable alternatives in fixed income technology—but few expected competition authorities to intervene.

Arguably, it would have been a surprise if no probe had been launched. When the CMA approved Ion’s 2018 purchase of Fidessa—a force in equity trading technology—its final judgement contrasted the fragmented equities landscape with Ion’s dominance elsewhere. In fixed income, Ion had “only one close competitor (with a much smaller share of supply), Broadway Technology”, the CMA stated.

• After Fidessa Exodus, Some Users Brace For Trouble: WatersTechnology spent three months examining Fidessa to see what has transpired inside the vendor since the Ion acquisition. During a period of great change, a lot of questions—and worry—remain. Click here to read more.

The current probe started with the publication of an enforcement order on April 2, telling Ion and Broadway to freeze integration work, while the regulator decided whether an in-depth investigation would be required. By June 17, the regulator will have to announce whether or not that deeper investigation is warranted, potentially putting the deal on hold for a further six months.

A spokesperson for Ion declined to comment. Two sources close to the firm claim the April 23 notice from the CMA was issued because a questionnaire had not been completed on time—it was later submitted in full—and not because Ion was withholding information.

A source at the CMA said the watchdog was “at the early stages of our investigation and unable to comment on its substance at this stage”.

Expanding in FX

Both Ion and Broadway provide connections to scores of trading venues. On top of this must-have connectivity service, the firms provide a range of other software—from user interfaces to pricing and risk management.

Ion’s strategy has been to gobble up a variety of broad and narrow rivals in the trading tech space, ruffling the feathers of banks and other financial companies. As the company has grown, it has become an ever-larger part of bank front-office tech spending, resulting in more frequent run-ins with customers that are under intense pressure to cut costs. A group of European banks last year teamed up to explore the viability of a consortium-built rival to Ion.

In fixed income, Ion already has a dominant position in commodities and rates – the head of sales at one trading tech vendor estimates it has an 80% share of the sell-side market for fixed income trading technology.

Broadway would give it a bigger slice of foreign exchange trading, for a price tag that has been estimated at around $600 million.

“On the FX side, Ion is looking to create a similar monopoly to the one it has in fixed income,” says a source on the leadership team at one systems vendor.

The head of front office IT at a European bank says: “On the FX side, Ion is currently not a credible player for tier-1 banks. Their functionality is far behind Broadway [in terms of] pricing models, auto hedging and order management.”

The merger would mean Ion getting its hands on Barracuda, an FX order management system (OMS) bought by Broadway in April 2019. Following that purchase, Broadway said it counted half of the top 50 global banks among its client base.

A former head of e-FX at a tier 1 bank says of Barracuda: “They built the best OMS on the Street. It’s a pretty slick build.”

As part of its expansion in FX, Ion also bought MarketFactory in November 2019 as a complement to its existing connectivity components.

FX options

Like equities, the market for FX trading technology remains somewhat fragmented, meaning competition and choice concerns are more limited than in other parts of fixed income.

The bank head of front-office IT says there are “many, many options on the FX side. We recently did a request-for-proposal where we compared around 10 credible e-FX offerings.”

Both he and the vendor source point particularly to multi-asset execution services platform smartTrade as a credible threat to Ion’s domination, particularly in the FX space.

A former Ion employee, and now a manager at a third alternative vendor, says: “I’m not too worried about Ion from an FX perspective taking that controlling stake in Broadway, because I still think Broadway and Barracuda are fairly small in the grand scheme of things. If they were to buy someone like smartTrade, then I’d be more concerned about it.”

The CMA can investigate mergers that fall inside its jurisdiction where either the UK turnover of the acquired enterprise exceeds £70 million ($86 million) or the two enterprises supply or acquire at least 25% of the same goods or services supplied in the UK and the merger increases that share of supply.

If the CMA launches an in-depth investigation, it will be weighing whether the merging of the two firms would result in a “substantial lessening of competition”. Ion and Broadway could head this off by offering remedies – if no remedies are offered, or the offered remedies are not suitable, then the CMA could order the merged entity to divest certain parts of the business, or even bar the deal from going ahead.

Alternatives to Ion across the fixed income and FX space include Axe Trading, Bloomberg eTOMS, ETLogic, List, smartTrade, SoftSolutions, TransFICC and Valantic.