Citi, in the next several months, will move institutional clients over from its internally built LavaX execution management system to vendor TradingScreen’s EMS. As part of the move, the big broker is dropping LavaX from its suite of offerings.
The reason for the shift: buyside interest in trading more asset classes. "LavaX was a single-stock U.S. equities-only system," said Shane Swanson, head of transaction services in Citi’s Lava Trading business group. "The decision was to either build a global multi-asset-class platform on our own or find an appropriate partner with an advanced system. We chose TradingScreen."
Citi could have built out its existing buyside EMS, but decided that the resources were best used elsewhere, since good vendor systems existed. "We’re the preferred execution services provider on the back end [of TradingScreen’s TradeSmart EMS], so that was a key factor in making the decision," Swanson said.
Rolled out in 2006, LavaX is an upgraded version of the earlier Lava Blotter workstation used by institutional clients. Swanson declined to say how many Citi customers currently use LavaX and will now be switching over to TradeSmart. Citi bought Lava Trading, which offered a range of execution, trade management and liquidity aggregation products, in 2004.
The announcement, two weeks ago, that Citi would use TradingScreen as its "preferred" EMS partner, was a long time in the making. Citi’s internal decision about LavaX’s future and the external review process took more than a year, Swanson said. He noted that Citi also had an existing relationship with TradingScreen. "It was used for some institutional buyside clients and in other parts of the firm on a global basis," he said. Both LavaX and TradeSmart are broker-neutral platforms.
Citi’s customers will be migrated to TradeSmart over the next several months, Swanson said. They will have access to algorithms from 31 brokers on TradeSmart. In comparison, LavaX includes algos from 18 brokers. Swanson said Lava Trading will support the LavaX platform until the transfer of customers is completed.
Buyside firms can execute equities, listed derivatives, foreign exchange and fixed income on the TradeSmart platform. TradingScreen has about 1,300 buyside clients globally, and provides access to 300 sellside firms.
Forty percent of TradingScreen’s client base is in the U.S. Another 38 percent are in Europe and 22 percent in Asia. Aitor Uria Saporiti, a TradingScreen spokesman in London, said the company’s U.S. business has "grown in the triple digits" during the last three years. The New York-based company, which will be 10 years old this fall, has offices in London, Hong Kong and Japan.
The TradeSmart EMS is used by several big broker-dealers for their institutional clients. In recent years, Merrill Lynch and Bear Stearns had offered the EMS to their buyside customers.
Although TradingScreen is now the preferred EMS provider for Citi’s buyside customers, institutions can continue to access Citi’s trading platform through a range of order management systems and EMS providers. TradingScreen’s EMS is currently integrating Lava’s ColorBook smart order router and other Citi execution services into its platform. "This partnership will provide substantial advantages to those clients utilizing TradingScreen," Swanson said.
In the run-up to its EMS decision, Citi conducted a so-called gap analysis of the two platforms. "Anything that was available on the old platform and that’s not available on the new platform will be developed," Swanson said. An example of this might be access to a particular algo provider’s suite of products that wasn’t already on TradeSmart, he said.
The Lava ColorPalette OMS for broker-dealers, along with Lava Trading Floor and Lava ColorMaker, two other products for brokers, are not affected by the decision to use an independent EMS vendor for institutions. However, the ColorPalette OMS is in for an expansion of its own. It will be broadened over the next 18 months to cover more asset classes and international trading, according to Swanson. "We’re fully committed to supporting the ColorPalette sellside OMS," he said.