Citi’s recent decision to sell its ColorPalette order management system to FlexTrade Systems reflects firm’s view that broker-neutral trading platforms are winning out over sell-side front-ends.

Last Monday, FlexTrade Systems, an independent provider of multi-asset trading platforms, said it was acquiring Citi’s sell-side OMS product. The transaction is expected to close by the end of December. According to media reports, Citi has been offloading non-core businesses since the global financial crisis of 2008.

The sale of ColorPalette to FlexTrade is a follow on to last year’s sale of LavaX, Citi’s front-end offering to TradingScreen, says Dan Keegan, co-head of Citi’s Electronic markets, “We did a deal last year with Trading Screen and this deal is a very similar transaction in terms of our mindset,” says Keegan. Citi also sold LavaFX to FXall last year. But an interview with Advanced Trading, Keegan suggested that Citi should focus more on running large trading businesses and the intellectual property associated with that, as opposed to software businesses.

“Strategically, we have chosen not to compete in the front-end space as it is crowded and expensive,” comments Dan Keegan, global co-head of Citi’s Electronic Markets in an interview with Advanced Trading.

Instead, Citi has chosen to focus on the IP areas in which it can differentiate itself, namely smart order routing, global Citi Match, and the principal trading and market marking capabilities housed within the ATD (Automated Trading Desk), he explains.

Citi obtained the ColorPalette OMS product, a US equity hosted OMS, when it acquired Lava Trading back in 2004.

Citi is transferring about 30 employees in the ColorPalette product and support teams to FlexTrade. “These are Citi employees that are ultimately going as part of the transaction,” says Keegan, who conveyed he was careful to choose the right partner for both Citi’s cients and employees.

“I think FlexTrade is the gold standard in the financial software space,” says Keegan. “We’re going to work closely with FlexTrade on an ongoing basis,” he says. “Customers are still going to be able to access not only Citi’s suite of algorithmic trading tools but also the broader array of brokers that have tools on the network,” he says.

Ivy Schmerken, November 23, 2010