- SEF or OTF: A Comparison of Swaps Trading Reform in the US and Europe
- SEF 101: Deconstructing the Swap Execution Facility
- Buy Side OMS and EMS: Integration, Expansion and Consolidation
- Talking to the Swap Execution Facilities
- A conversation with Chris Ferreri, MD of Hybrid Brokerage at ICAP
- A conversation with Jim Toffey, CEO of Benchmark Solutions
- A conversation with Lee Olesky, CEO of Tradeweb
- A conversation with equity SEF eDeriv
- A conversation with Rick McVey, CEO of MarketAxess
- A conversation with Jamie Cawley, CEO of Javelin
This is my latest research report looking at the buy side’s usage of trading technology. See the press release below, the executive summary at tabbgroup.com and coverage of the study from Securities Industry News and Advanced Trading.
NEW YORK & LONDON – (Business Wire) According to new research from TABB Group, the integration of order management (OMS) and execution management system (EMS) functionality is now the driving force in streamlining the buy-side’s desktop. Although nearly 50% of the buy-side trading community receives OMS and EMS technology at virtually no direct cost through their broker relationships, TABB forecasts a 5% and 1% CAGR (compound annual growth rate) in OMS and EMS technology spending, respectively, between 2010 and 2012, by buy-side firms.
With 100% of TABB’s research study participants now using an OMS, EMS or both, the buy side’s top priority, says Kevin McPartland, senior analyst who authored the study, “The Buy-Side OMS and EMS: Integration, Expansion and Consolidation,” has switched from widgets and algos to integration. “With an eye on the middle office, back office, reference data system, analytic package or real-time market data, the trading-floor bouncer is working hard to throw double keying out the back door.”
However, McPartland notes, brokers’ ability to provide trading platforms gratis to all of their buy-side customers will shrink in the next three to five years as TABB Group believes the buy side will begin paying for these connections as brokers follow a cost-conscious approach to order-flow acquisition. They also believe that the 3% fewer buy-side firms using broker-funded EMSs in 2010 than in 2008 signals a trend. A strong increase in spending hard dollars for platforms further highlights the model shift. “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.”
McPartland says that adoption rates show US equity-focused, buy-side firms rely completely on front-end trading technology. “In 1996, adoption levels were at 96%. Four years later, we’re at 100% and while that 4% jump might not appear large, it represents 400 to 500 new customers for platform providers. For OMS/EMS providers, competition is fierce. Even though black boxes now generate a disproportionate amount of volume, trading systems act as the gas, brake, steering wheel and airbag. With no cash-fort-clunkers program in sight for Wall Street, innovation, integration and old-fashioned customer service are factors in how vendors differentiate themselves and determine which car the buy-side drives.”
He also points out that the average number of EMSs on the buy-side desktop dropped from an average of 3.4 in 2008 to 1.6 in 2010 due to management demands for greater execution efficiency, true multi-broker access via a single platform and a push by EMS providers to be one-stop shops.
Analytics, charting, algorithms, risk management, P&L calculations and other core trading-system functions will see incremental improvements over the next several years, and that multi-asset and multi-geography access will become more common and robust as platforms once focused on a single market or asset class expand outward. “Co-opetition between platform providers will grow,” McPartland says, “and become more contentious due to expansion into new areas that will step on toes and strain partnerships.”
The most dramatic changes will take place under the covers, he adds. “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. However, despite the efforts of some to merge the OMS and EMS into a single platform, messaging technology and protocol standards will allow disparate systems to communicate as if they were one.”
He notes, though, that there is no consensus between buy-side traders concerning their desire to merge the OMS and EMS into a single OEMS, due to their concerns over adopting an unnecessarily complex system.
The 40-page study with 37 exhibits is based on interviews with 118 US-based buy-side traders, split approximately 50% among hedge funds and traditional asset managers. One-to-one discussions covered system usage, likes and dislikes, business drivers, changing requirements and what traders expect to see from OMS and EMS providers going forward.
The study is available now for download by TABB Group Research Alliance Equity clients and pre-qualified media athttps://www.tabbgroup.com/Login.aspx. For an executive summary or to purchase the report, visit http://www.tabbgroup.com or write firstname.lastname@example.org.
A video summary of the study is also available at TabbFORUM, www.tabbforum.com, the online community for capital markets professionals.
“There are EMS platforms with just enough order management functionality that some firms can get by with just an EMS,” explained Mr. McPartland. “And there are OMS platforms with just enough execution functionality that there is no need for an EMS.”
According to Mr. McPartland, there is no all-in-one system that can do everything, and no apparent technological breakthrough that has the trading platform world buzzing, just small incremental steps.
The article gives a preview of TABB Group’s soon to be released OMS/EMS study for 2010. The market for front office technology is as hot as ever, with providers trying to upstage each other in a variety of ways. More to come on this after the study is formalized published later this month…