Increasing levels of automation across global securities markets are forcing order and execution management systems (OMS/EMS) providers to offer buy-side market participants more value at a lower cost, according to a new report by financial research consultancy Aite Group.
Facing pressure from market structure innovation, regulatory change such as the Dodd-Frank Act in the US and the Markets in Financial Instruments Directive (MiFID) in Europe, together with stricter compliance requirements, buy-side firms have had to adopt more sophisticated trading technology – including OMSs and EMSs. Pressure to improve functionality has coincided with “the worst economic conditions in decades”, according to the report – leading to substantial downward pressure on pricing.
OMSs within buy-side firms transmit communications between portfolio managers and broker-dealers or execution venues. Now most buy-side firms view their OMS as a “necessary evil”, according to Aite, due to the costs of maintenance and ongoing problems with reliability. Most complaints about OMSs are based on their inability to provide reliable connectivity to external systems such as an EMS.
In comparison, the EMS is largely designed for real-time management of orders. Access to real-time market data is important for users, as is the ability to quickly filter the information to make trading decisions. EMS adoption, suggests Aite, is often driven by a need to manage trade executions in an ultra-low latency environment, such as a marketplace with a high proportion of high-frequency trading activity.
For asset managers that have made an OMS the central hub for their trading operations, integration with the OMS is a key criterion for EMS selection, notes the report. The ability of an EMS to provide connectivity to global execution venues and support multiple asset classes is also a major factor.
Buy-side market participants approached by Aite cited the relegation of the OMS to the middle-office as a dampener on future growth for OMS platforms, while many were concerned about the inability of OMSs to handle OTC derivatives – a task at which they “failed miserably”, according to Aite. For the EMS, robust compliance abilities were much in demand, as were solutions for better integrating with OMSs.