UK Watchdog Has Competition Concerns Over Ion-Broadway Deal

The UK’s competition watchdog has found Ion’s purchase of Broadway Technology raises competition concerns in the supply of electronic trading systems for fixed income, but not foreign exchange (FX).

The verdict is based on a three-month initial probe by the Competition and Markets Authority (CMA). A full investigation may now follow, during which time Ion and Broadway would have to freeze integration work.

In a statement published today, the CMA describes Ion as “by far the largest” supplier of fixed income e-trading software, with Broadway and Bloomberg the only significant competitors.

One industry source who provided evidence during the CMA’s probe says the watchdog’s concerns are “logical.” An executive at a rival vendor agrees: “I am not surprised the CMA sees competition issues in fixed income, due to the limited number of vendors that are able to support the complex electronic workflows in this asset class.”

Ion has five working days to address the CMA’s concerns. If it is unable to do so, the deal will be referred for an in-depth investigation.

Ion did not respond to a request for comment in time for publication.

The Ion–Broadway deal sparked industry concern when it was announced in February, with some market participants arguing it would leave banks with a limited choice of vendors in certain trading systems. Already strong in rates trading, the addition of Broadway was seen as a major expansion of Ion’s FX franchise. The regulator launched its initial probe in April, later extending it after Ion failed to supply documents on time.

In the CMA statement, Joel Bamford, senior director at the watchdog, says: “We’ve examined a wide range of evidence during this investigation, and numerous customers have raised serious concerns. We consider Ion to already be the largest provider of these products and they’re buying one of their closest competitors. We are therefore concerned that this merger could damage competition in a market which is critical to trading activities in the UK, leaving the merging companies’ customers with a worse deal.”

The question that you have as a firm is, how dependent do you want to be on a single vendor?

Bank head of fixed-income technology

The CMA’s investigation found the deal could leave customers “facing a significantly reduced choice of supplier with the potential for higher prices or more onerous terms and conditions on their services.”

Such concerns are not universally held. “Personally, I am not concerned about the merger as I see a number of alternatives,” says the head of front-office IT at a European bank, listing Axe Trading, smartTrade and TransFICC, among others. “Additionally, there is a lot of desire among many smaller fintechs to invest in the space,” he adds.

But the head of fixed-income technology at another bank says Ion’s acquisitions of other firms such as Fidessa have already restricted customer choice. “The question that you have as a firm is, how dependent do you want to be on a single vendor?”

The CMA also found that following the merger, and prior to the CMA imposing an initial enforcement order on Ion on April 2, the merged entity updated the proposed terms and conditions offered to at least one Broadway customer “in a manner which the CMA considers may have been detrimental to the customer.”

Ion has in the past been criticized for its approach to negotiating and enforcing contracts and for the way it prices and bundles its technology. Clients have complained that Ion’s contracts can be hard to escape or scale back.

A source close to the UK regulator says its investigation is looking at the effect on competition of the merger between Ion and Broadway and it is not intending at this point to go wider, although Ion’s contracts are something it does have the power to look into “if it thinks appropriate.”

Today’s decision does not come out of the blue. In a 2018 investigation into Ion’s acquisition of giant equities trading tech vendor Fidessa, the CMA said Broadway was its “only close competitor” in fixed income. In its current investigation, the regulator says Bloomberg is the only competitor to impose a significant constraint on an Ion–Broadway tie-up, while AxeTrading, smartTrade and TransFICC “provide a more limited constraint.”

In its investigation, the CMA says only a small number of the largest banks have found it viable to switch from Ion and/or Broadway to in-house systems for fixed-income trading.

Last year, a group of European and UK banks began assessing the viability of a do-it-yourself alternative to Ion. However, industry sources point to a natural barrier to the project—all the banks in the consortium have multi-year contracts with Ion that are unlikely to end at the same time, meaning co-ordination on the switch is tricky.

In September, rating agency Moody’s downgraded the corporate family rating of Ion Trading Technologies to B3 from B2, reflecting “its high leverage following the acquisition of Fidessa in 2018, combined with the continued payouts of dividends.”

Additional reporting by Duncan Wood