It’s a reliable tool that sits on every trader’s desktop, but according to a new study the same technology standby must change and adapt to new market conditions if it ever hopes to survive.
Makers of order management systems, the programs from which traders plan their trades, are offering “OMS as a service” to lure new clients and keep valued customers who have seen the OMS marketspace consolidate over the years. Also, the merging of tools and offerings from execution management systems with OMSes continues apace. These are the findings of a recent study by Aite Group’s Spencer Mindlin. In his report, entitled Buy-Side OMS Market Update, 2016: Tailwinds in the Sails, Mindlin profiled 13 OMS vendors with an array of buyside clients that use the OMSes, and broker-dealers that occasionally provide OMS technology to their buyside clients.
“OMS as a service” has been a hit with buyside clients, Mindlin told Traders. “Compliance as a service, back office as a service — this is an increasing trend in the OMS space. Looking for ways to provide more and more services in scale so that the buyside can shed those costs to the OMS vendor, which, is providing services with economy of scale and mitigate the costs, has been popular,” he said.
The integration of the OMS and the EMS has been talked to death, he added. “A pure EMS vendor will ‘talk their own book’ and say that an OMS vendor cannot provide what cuts the mustard. But the truth is when you look at vendors, if they haven’t delivered on the holy grail of OMS and EMS — the synchronized blotter, the ability to work your orders, do your TCA, handle real-time market data, real time compliance when you click the buy button, — then they are at a disadvantage,” he said.
Mindlin added that there are a few vendors that have created a true OMS/EMS, but “I don’t think the market has woken up to that yet.”
According to Mindlin, this move is a “medium- to long-term game changer.” He added that the OMS vendors that have invested in providing clients with real trading solutions will pull away from the pack in next five to 10 years.
“It was surprising to find two to three vendors providing a combined OMS and EMS solution,” he said, “and I think that this will not only affect the OMS market but also the separate but complementary market of EMS providers.”
OMS Under the Microscope
According to Mindlin’s research, the 2016 OMS market remains crowded, with more than 15 vendors providing “similar platforms.” He concluded that in this space, much like the rest of the financial technology arena, “[c]ontinued industry consolidation is inevitable.”
Mindlin also found that the OMS will continue to branch outside of its traditional trading role. The solutions that continue to win industry support will offer compliance and risk tools as well trading of equities, options, fixed income, foreign exchange and other asset classes. “The buyside is moving to further organize its internal operational architectures around a centralized view of regulatory compliance, including investor transparency, reporting and trade analysis,” the report reads.
And the days of an OMS dedicated to one regional and one asset class, usually equities, are long gone. “If the OMSes are not going [to] global, multi-asset class trading, they are not a contender,” Mindlin said. The Aite report found that OMS “users remain largely focused on managing cash equities at approximately 60 percent, but fixed income is also showing strong usage with 14 percent.” And being adept at more than one asset class remains a strength for OMSes.
“This has been a focus for the past few years: They need to lay claim to being a truly global multi-asset class trading platform. Every system claims to be, but just because they say it doesn’t mean it is true,” Mindlin said.
The reason for this is obvious: the march to control costs and to do more with less.
For a top-tier asset manager, the trend is toward consolidation of trading platforms. Pre-2008, when times were good and there was plenty of rooms at these firms, the buyside would deploy multiple OMSes on the trading floor. But eventually there was too much complexity and cost involved for maintaining support, and aggregating risk and compliance, according to Mindlin. “If you have trading in multiple regions with different OMSes, trying to get an aggregated view of the risk is a challenge. It’s just not cutting it.”
The compliance departments inside financial firms are having a much bigger say in the choices of solutions put forth by technology decision-makers. “And the trader is saying we need a system that is going to cut it on a global multi-asset-class basis because we cannot afford the cost and risk of maintaining multiple systems any longer,” Mindlin explained.
Other findings from the Aite OMS report include that a select group of OMS vendors are moving beyond their traditional client base to pursue hedge fund and wealth management clients, which tend to have limited in-house IT capabilities. “The OMS client base continues to evolve, though it is still dominated by traditional asset managers at 57 percent. Hedge funds currently present 29 percent of market total,” reads the report. Along with expanded risk and TCA controls, OMS vendors are beginning to offer outsourced middle- and back-office IT services and “legal-information-as-a-service” solutions such as shareholder disclosure reporting offerings.
In the new market structure, which has had a huge impact on the markets, buyside traders are interacting with a wider array of broker-dealers. They “have also increased the number of their prime broker relationships to minimize information leakage, reduce counterparty exposure, ensure competitive pricing and ensure business continuity,” reads the report. Mindlin predicts that this broker bevy could have a “broad” impact on the financial services sector, especially in terms of “how it responds to regulatory reform, particularly regarding consolidation of trading and positions for risk management, cross-margining and collateral optimization.”
With these changes on the OMS horizon, Mindlin does not expect to see OMSes fading from the trader’s desktop anytime soon; they will remain a staple for the time being. “The buyside needs good technology that works,” Mindlin wrote, “with no surprises.”
