A key factor in the growth of electronic trading has been the development of multi-broker execution management systems. The early origins of these systems were proprietary offerings developed by brokers, initially for hedge fund clients. However that model passed into obscurity some years ago, as hedge funds broadened their prime broker relationships and long only fund managers adopted algorithms and electronic trading more generally.
As in previous years the 2015 Survey of Algorithmic Trading asks respondents to indicate whether they use and EMS and if they are willing, to name those they use. Ever since this question was included, there has been one inexorable trend – this steady rise of Bloomberg EMSX. Other names are mentioned consistently including Newport, RealTick, REDI and TradingScreen, but none garners anything close to the level of mentions seen by Bloomberg. Based on initial results it seems possible that Bloomberg will attract as many mentions as all other providers combined in the 2015 survey. Of course the overall EMS marketplace is very large and, as algo trading expands, still growing. New asset classes offer opportunities for further growth still.
Indeed platforms now incorporate not only multiple broker and venue connections but in many cases full multi-asset class functionality. Developing this functionality is not cheap and the business model for independent companies such as TradingScreen depends on the ability to attract client/broker connections sufficiently valuable to both parties to justify the process of implementation and the ongoing cost of operation. This business model has been consistently attacked by Bloomberg ever since the company launched its own execution management system EMSX. EMSX obviously has the advantage of being able to access Bloomberg market data, a key component of any successful EMS. In addition, by linking the EMSX functionality to the main Bloomberg terminal and not charging brokers a fee for each client connection they maintain, EMSX is seen as free by everyone. Whether it is in practice free is not the point. At the same time, while Bloomberg Tradebook attracts business as an algorithmic broker in its own right, EMSX has maintained a consistent approach of maintaining connections to all brokers electronic trading capabilities.
EMSX is not without critics but whatever concerns may exist appear to be being overcome by a combination of ever increasing functionality and the ongoing perception that there is no cost. Other EMS providers will need to continue to innovate, and may have to consolidate if they are to have a chance of competing in the long run.
The Survey remains open and buy-side traders are encouraged to provide their input by using the link at http://survey.thetradenewsonline.com