A new report from research firm Aite Group has found that the use of execution management systems (EMSs) by traditional asset has substantially increased over the last two years.
The report estimates that the overall use of EMS technology will rise by 48% from two years ago. Hedge funds are expected to account for 37% of users followed by private proprietary traders (22%) and broker dealers (18%).
Traditional asset managers are now the fourth largest group of EMS users in 2008 (12%), increasing from under 100 in 2006, to over 300 estimated users this year.
An EMS system is a trade management solution that allows its users to manage electronic order flow that needs to be directed to multiple venues.
The increase in electronic trading methods across asset classes is the main factor in the growth in use of EMSs. The study also found that EMS vendors have now placed a significant focus on expanding the breadth of asset classes handled by their EMSs, in part due to the proliferation of new trading venues, as well as the geographies supported by their systems.
Most EMS providers now include equities, options, futures and FX functionality. Many of those that do not currently offer these asset classes have plans to incorporate them by the end of 2008. However, use for fixed income instruments was still found to be low and is currently only offered by Orc Software, Trading Screen and Townsend Analytics.
North America and Europe are still the biggest markets of EMS systems, although use in Asia has steadily increased due to the advent of electronic trading in the region.
Even though use of EMS technology in Latin America is still negligible, the report considers the capital market reforms and the introduction of DMA to the Brazilian exchange Bovespa to spur growth of EMS systems in the region in coming years.
Aite Group expects EMSs to continue as a growing segment of trading technology in the short to medium term. The report concludes that improvements in underlying technology, increasing market automation and DMA, continued algorithm development and increases in quantitative trading will continue to drive developments in EMS technology for years to come.