The availability of free trading platforms from brokers will diminish in the US over the next three to five years, a new report from research consultancy TABB Group warns.
Brokers have historically provided front-end systems to institutional clients in return for guaranteed levels of order flow. But a more cost-conscious approach to order-flow acquisition on the sell-side means that more of the buy-side will have to pay for their connections to market, according to a new study, ‘The Buy-Side OMS and EMS: Integration, Expansion and Consolidation’, based on interviews with US-based buy-side traders.
TABB asserts that nearly 50% of buy-side traders receive order management systems (OMSs) and execution management systems (EMS) at “virtually no direct cost” via brokers. Kevin McPartland, report author and senior analyst, says the fact that 3% fewer buy-side firms are using broker-funded EMSs in 2010 than in 2008 signals a trend. “While existing practices will not die, in the future, brokers will be as willing to foot the bill for connectivity as a guy is to foot the bill for dinner after a bad date,” he said.
The report also identified integration of OMS and EMS functionality as a key focus for buy-side efforts to streamline the trading desktop. Nevertheless, TABB forecasts a 5% and 1% compound annual growth rate in OMS and EMS technology spending, respectively, between 2010 and 2012, by buy-side firms. “Integration between EMS, OMS and the other systems that make up the complete trading lifecycle is the hottest issue for buy-side firms, and providers will need to work diligently to ensure inter-system connectivity is seamless and quick to implement,” said McPartland.
According to the study, the average number of EMSs on the buy-side desktop has dropped from an average of 3.4 in 2008 to 1.6 in 2010 due to both the streamlining demands of management and the advent of multi-broker access via a single platform. McPartland commented that competition is fierce between rival providers of OMS and EMS systems, with “innovation, integration and old-fashioned customer service” as key differentiating factors.
The report is based on interviews with 118 US-based buy-side traders, split approximately 50-50 between hedge funds and traditional asset managers.