One order management system is not enough for FlexTrade Systems.
FlexTrade, an execution management system vendor, purchased Citigroup’s sellside OMS ColorPalette earlier this week. FlexTrade will market its new OMS alongside its FlexOMS, giving it two products to offer clients.
Citi’s LavaFlow subsidiary, which had been selling ColorPalette, along with other execution products, will continue to offer two services: a market data product that displays depth of book and an order-routing product.
The vendor purchased ColorPalette in an all-cash transaction on Monday. The deal is expected to close before the end of the year. Neither FlexTrade nor Citi would disclose any details.
"I’ve been interested in this product for a long time," said Vijay Kedia, president and chief executive of the Great Neck, N.Y.-based technology vendor, as he explained the logic behind the deal. "It’s a very natural fit for us."
To begin with, ColorPalette’s customers are happy with the product, he said. And to keep things that way, FlexTrade wants to ensure a smooth changeover for them.
"The entire ColorPalette team is moving to FlexTrade," Kedia said. "The idea is to make sure the customers experience a very seamless transition and continue to speak to the same people, the same team, they’re used to dealing with."
The broker OMS market is a shrinking one. With Citi’s departure from the business, only five primary competitors remain: Bloomberg, FlexTrade, Fidessa, Mixit and SunGard. Both FlexTrade and Citi agreed it is hard for firms to run a successful OMS business.
"To support and maintain and enhance front-office technology systems, especially an OMS, takes a big commitment," Kedia said. "And unless it’s your core business, it’s difficult to do this right."
The exec added it was possible FlexTrade might combine the two further down the road. "But there’s no urgency, no push, to do it right away," Kedia said.
FlexTrade said it would make a substantial investment in ColorPalette’s infrastructure, as well as integrate its existing products and services without asking those customers to change their core OMS.
The vendor tapped Greg Ludvik, a 10-year Citi veteran, to continue to run ColorPalette. In addition, FlexTrade will retain ColorPalette staff for product development and support.
FlexTrade bought ColorPalette, Kedia said, because many of its users already use the FlexTrader EMS, which offers program trading, global equities and multi-asset trading. ColorPalette trades only U.S. equities.
"There were great synergies and the opportunity for us to provide these added functions and features to the ColorPalette customer base," said Kedia, who declined to disclose the number of client installations at either firm.
In 2007, ColorPalette had around 50 users. Some of those accounts had moved to ColorPalette after Citi’s Lava took over the market-making OMS business at NYFIX.
FlexTrade unveiled FlexOMS for broker-dealers to answer the growing demand at sellside shops for program trading tools in the summer of 2008. Brokers have been using FlexOMS for cash trading, programs and trading in other asset classes.
For Citi, unloading ColorPalette followed last year’s deal to move its institutional clients from its EMS, LavaX, over to one built by TradingScreen. Now with the ColorPalette deal, Citi has exited the front-end software business altogether, said Dan Keegan, global co-head of the electronic markets at Citigroup Global Markets. Instead, Citi will focus on its smart-order-routing, algorithmic, ATS and global market-making businesses, he said.
"Strategically, we have chosen not to compete in the front end space," Keegan said. "Our investment dollars are much better spent on enhancing Citi’s execution capabilities."
The deal for ColorPalette was a shrewd one, said one source knowledgeable about the front-end business. Flextrade has been concentrating more on building its brokerage customer base over the past 12 months. The deal gives them good relationships, the source said. And it gives FlexTrade’s sales group another product to sell.
"If their plan is to go after the Fidessa space," he added, "it’s a not a bad plan."
