Most buy-side firms now prefer to use just two or three different execution management systems (EMSs) – a much lower number than previously, according to a new report from Boston-based financial consultancy Celent.
The change comes as buy-side firms bid to improve operational efficiency and convenience, and would lead to brokers working more on applications as opposed to building trading platforms.
“Broker-neutrality is becoming more important,” said Anshuman Jaswal, a senior analyst in Celent’s securities and investments group and author of the report. “EMSs have become global and multi-asset in nature. The pressure to offer enhanced functionality from the buy-side means there is more commoditisation of EMSs.”
There was now a lot of common functionality across the various EMS products, said Jaswal, partly due to client requirements, but also because of vendor emphasis on ensuring they offered a product with broadly the same capabilities as competitors’ products.
Jaswal said a critical factor for buy-side firms seeking an EMS was integration and connectivity with a portfolio accounting and management system, the order management system (OMS), as well as other back office clearing and settlement systems.
Due to the increasing importance of these buy-side requirements, Jaswal said vendors were providing more OMS functionality to their clients in an attempt to reduce the requirement for using an OMS during trading hours.
“This also means there is closer competition between EMS and OMS vendors than ever before. The market is much tougher,” said Jaswal. “As a result of the current financial crisis, commissions are lower than ever before and competition has increased. The barriers to entry have gone up.”