We spoke to just under 500 portfolio managers and traders globally to see what they’re doing with and what they think about OMSs, EMSs and TCA platforms for Equities, FX and Fixed Income. This is not a space of dramatic year on year change given the maturity of the providers and their products. However the trends found in trading system usage speak volumes to how investors are viewing and dealing with market structure changes.
Not surprisingly a big chunk of the change and spend is in fixed income. Not only are derivatives markets changing due to new regulations, but cash rates and credit markets are also going through a period of major change driven by a host of factors from Basel III to changing sell side business models. The full report both talks through these trends and provides the underlying data we collected from those 500ish interviews about who’s using who, what they like, what they don’t like and why they might look to make a change. You’ll see a little taste of that in the press release below. Ivy at Wall Street & Technology also did a good write up.
On another note, I’ve been a little delinquent about blog posts lately. Shockingly enough the google ads on this site don’t exactly pay the bills (or for a Venti Latte for that matter), so I’ve needed to spend my time on writing research and other things that people actually pay for. You understand right? And one closing thought: SEF mandates are finally almost here. I hope we get the no-action we need on the issues still threatening to delay things so the band-aid is finally ripped off. More details on that soon…
Tuesday, February 4, 2014 Stamford, CT USA — Changes in market structure are prompting institutional investors to consider the potential expensive and disruptive step of changing the technology that services their trading desks.
A new report from Greenwich Associates, Fixed-Income Desks Lead Increase in Tech Spend, Likelihood to Change OMS/EMS Providers, released today reveals 30% of the head traders interviewed at 486 buy-side institutions say their firms are considering a change in the providers of their order management systems (OMS) or execution management systems (EMS). Across institution types, the trend is stronger among investment managers (35%) than hedge funds (29%). Among investor types, fixed-income investors (39%) are most likely to explore new systems.
Although the perpetual search for an edge in seeking investment returns largely drives the need for new systems, alterations in market structure brought on by new regulations have become an equally significant driver. The impact of new regulations was clear among fixed-income desks which were more likely to report a year-on-year increase in desk budgets and a higher allocation of spend to technology as they adapt to the new fixed-income market environment.
“Regulations are reshaping the way fixed-income derivatives are traded and cash markets face a major evolutionary step with the buy side now holding the majority of the inventory and, therefore, the power,” says Kevin McPartland, head of Greenwich Associates Market Structure & Technology. “This is in large part why a significant amount of fixed-income investors plan to look for a new system in 2014.”
Integrated OMS/EMS Platforms
The new derivatives rules in the U.S. and Europe and the increasing integration of asset classes and investment strategies are fueling demand for a combined OMS/EMS platform. A significant two-thirds of the institutions participating in this recent study indicate a preference for an integrated OEMS, including three-quarters of hedge funds. However, only 11% of the participating head traders say they currently employ an OEMS, indicating significant potential growth as integrated systems evolve.
“In both equity and fixed income, demand for comprehensive OEMS platforms is strongest among small and mid-sized institutions as a means of reducing costs, facilitating regulatory compliance and accessing liquidity,” says Greenwich Associates Institutional Analyst Kevin Kozlowski.
Institutions Rate Quality of OMS and EMS Providers
Eze Software Group and Instinet received the highest EMS marks from study participants for overall quality of their EMS. Participants in the study conducted in the fourth quarter 2013 rated BlackRock, Bloomberg and Charles River Development highest for overall OMS quality.