Buy-side firms will increase spending on order management systems (OMSs) at a compound annual growth rate of 12% over the next four years to $699 million, according to a new study from research advisory firm TowerGroup.
Total spending on OMSs will outstrip overall buy-side IT outlay – predicted to grow at 7-8% to 2012 – due to the extension of functionality to derivatives and wealth management and the growth of demand in emerging markets.
However, TowerGroup’s prediction does represent a fall in revenue growth for OMS providers compared with the 15% growth rate reported for 2002-2008.
TowerGroup said that derivatives represent “a unique opportunity” for vendors to extend beyond traditional OMS functions into areas such as valuation, pricing and risk management. The research firm added that support for wealth management features would prove “essential” to OMS market growth. OMSs would need to handle thousands of accounts, offer portfolio modelling and advanced grouping at the household level, and incorporate functionality for more tax-efficient trading, TowerGroup asserted.
With both the mature US and UK markets saturated, OMS vendors will find most opportunity for growth in continental Europe, the Middle East, Asia including China and India, and South America, according to the report, which also noted that a wave of mergers and acquisitions over the past three years had left the sector more robust.
“Leading OMS vendors have emerged successful and deeply entrenched in the buy-side business. Mergers and acquisitions have also led to new economic models in this segment, including brokers buying OMS systems and offering them to buy-side clients as part of a comprehensive brokerage offering,” the report said.