Institutional investors spend between USD1.5bn and USD2bn per year on order management and execution management systems for their trading desks — a growing amount due to increased demands for compliance tools and the need to keep pace with rapid changes in market structure.
A new report from Greenwich Associates, Market Structure Changes Drive New Demands in OMS/EMS Technology, estimates annual buy-side spending on order management systems (OMS) and execution management systems (EMS) has increased 10 per cent over the past two years.
Trading desk technology is playing an increasingly critical role for institutional investors as a means of achieving optimal trade results and meeting tough new compliance demands associated with new regulations and client-imposed reporting requirements.
Greenwich Associates analysed the competitive landscape of OMS and EMS providers to assess how the fast-changing needs of buy-side institutions are influencing the evolution of this industry. As part of this analysis, Greenwich Associates asked 424 institutional investors globally about their use of OMS and EMS systems and other trading technology and had in-depth conversations with five of the industry’s leading system providers. This new report also documents key features about individual technology providers and provides recommendations to both buy-side firms looking into new trading technologies and to the vendors servicing these institutions.
Eight to 10 major vendors currently compete for OMS business, with roughly the same number of major competitors vying for institutional business in EMS. The universe of global OMS and EMS system providers is a diverse mix. Larger OMS/EMS players include Bloomberg, Charles River Development and ITG who are working to deliver integrated systems, often called OEMS, to a broad base of institutional clients. Billed as end-to-end solutions, these systems are designed to meet the needs of portfolio managers, traders, risk managers, and support staff for buy-side institutions of all types. For example, Charles River’s Investment Management Solution covers multiple asset classes and currencies, provides access to 550 broker-dealers, 150 liquidity platforms and 600 algorithms, and incorporates more than 1,700 compliance rules from 35 regulatory bodies in 20 countries.
Other providers have the joined the larger firms in the end-to-end solutions space. Citadel Technology, for example, leverages proprietary technology for its own investment operations and trading desks to provide complete solutions for hedge funds around the world. These providers compete against OMS or EMS-only vendors, such as Eze Software Group with its distinct Eze OMS and RealTick EMS and Advent Software with its OMS-focused Trading and Compliance Solution.
Among buy-side institutions interviewed by Greenwich Associates, Bloomberg received the most mentions as an EMS and OMS provider. Charles River Development followed Bloomberg in OMS and ITG followed in EMS. ITG, Advent Software and Eze Software Group rounded out the top five in OMS while Charles River Development, Advent Software and FlexTrade were the five most-mentioned providers of EMS.
Institutions are being driven away from the traditional model of discrete OMS and EMS platforms and toward integrated OMS/EMS solutions by a host of factors, including:
· Cost pressures on buy-side institutions
· Compliance demands from new regulations
· Tougher transparency demands from clients
· The fragmentation of liquidity associated with the proliferation of alternative electronic trading venues
Many technology vendors offer systems marketed as OEMS, or integrated OMS and EMS. The Holy Grail of a truly integrated OMS/EMS system, however, has yet to arrive.
“Many of the platforms marketed as OEMS function more as side-by-side OMS and EMS as opposed to truly integrated solutions,” says Greenwich Associates analyst Kevin Kozlowski. “Today’s integrated platforms are used by only about 30 per cent of institutions we interviewed and to date, the use of comprehensive, end-to-end systems has occurred primarily among smaller institutions and hedge funds.”
Greenwich Associates believes that while existing end-to-end systems offer viable solutions for smaller buy-side institutions and hedge funds, larger institutions will have trouble finding a single holistic solution offering the full functionality such institutions require to meet their more complex needs. Even for the largest OMS and EMS providers, achieving true integration will be a complex undertaking requiring significant experimentation and investments in R&D.