Greater buy-side trust in cloud solutions and demand for advanced derivatives capabilities are increasingly shaping execution management systems (EMS), a report exploring system functionality from Woodbine Associates has found.
The widespread adoption of cloud-based EMSs from buy-side firms to cut in-house technology costs and focus on the business of asset management has accelerated the migration of these systems to the cloud.
“The buy-side has become more comfortable with cloud-based solutions,” Matt Samelson, principal at Woodbine and report author, told theTRADEnews.com. “We’ve seen these hosted arrangements develop to offer order management system (OMS), EMS and portfolio management functionality, elements of which customers are able to pick and choose as they see fit,” he said.
However this apparent convergence does not mean OMSs and EMSs will naturally subsume into one another, Samelson cautioned. The two still play clearly different roles and efforts to create combined systems will remain marketing devices and not improve system harmonisation.
The report stated that recent global efforts to reform the OTC derivatives market, including central clearing and trading instruments on exchange-like platforms, have impacted EMS offerings.
“Demand for increased derivatives functionality has increased as these markets undergo structural changes, in part linked to regulation such as the Dodd-Frank Act, making them more standardised,” he said.
But, despite these changes to derivatives markets, EMSs themselves have not shown great advances in technology or functionality as opposed to a constant progression.
“These systems haven’t seen major advances in sophistication in recent years, but have built on complex strategies and focused on expanding functionality across asset classes,” Samelson said.
The report estimates asset managers constitute only 16% of EMS customers, with hedge funds dominating the client base at 55%. Banks, brokers and pension funds make up the remainder of the 12,500 EMS clients worldwide in the US$1.5 billion industry.
The report also asserts asset managers have shown greater take-up of EMS technology as they move more into higher-risk, higher-return activities as they seek to improve performance.
Samelson based his findings on the offerings of 14 leading EMS providers, details of which were collected via a survey and system demonstrations.