One trading system or two?
So far, there’s no clear direction on whether buyside trading desks should keep management and execution of their orders in two separate systems or unify them in a single one.
“There is no real consensus out there on one system,” according to Tabb Group research analyst Cheyenne Morgan. “The debate continues.”
The lack of consensus is a core finding of a recent Tabb Group report authored by Morgan. The “Buy-Side OMS & EMS: A Market Snapshot” study found that almost half of the U.S. asset managers and hedge funds prefer to have separate order and execution management systems, despite growing overlap in functionality between the two.
Tabb surveyed 52 buyside to gauge their opinions on existing OMS and EMS products.
Fifty percent of the buyside said OMS and EMS functionality should be split, while 44 percent said it should not. Six percent could not decide.
Morgan told Traders Magazine that the respondents who wanted the unified system tend to be smaller firms that don’t have a great deal of order flow and therefore don’t require lightning fast execution management systems. Also, these smaller firms do not have large compliance requirements or needs, such as maintaining audit trails, which require a full service order management system.
“The unified system approach (OEMS) is really desired by the smaller firms because they have a simplistic workflow,” she said. Conversely, larger firms want separate and specialized systems.
“Bigger firms want to keep the OMS separate as they need to maintain dedicated and complex audit trail records and have a large compliance need,” Morgan said. “They also want a top-shelf and fast EMS for lightning fast execution.”
Some firms, she added, just want to maintain separate OMS and EMS systems as that has been their convention and don’t wish to change. These firms note that having distinct systems allows for easier upgrades or replacement of one system, such as an EMS, rather than a longer duration and more costly full system changeover.
Morgan told Traders Magazine that swapping out an EMS was much easier, since it is only concerned with carrying instructions. OMS on the other hand, is a much larger and complex system given its regulatory mandate – generating audit trails, reports and other data heavy and risk-management analytical functions – which requires a much longer switchover and implementation timeframe.
“Switching an EMS is easy; that’s not the same with an OMS,” Morgan said. According to her research, more than 60 percent of surveyed firms describe the process of switching to a new OMS as “very difficult.”
That said, Morgan added the debate between having one unified OEMS or two distinct systems is likely to continue into the foreseeable future.
The notion of combining the two management systems originated a few years ago as institutional investors technology budgets shrank due to the recent and ongoing decline in trading volumes and profits. Rather than maintain two distinct systems, the theory was that buyside firms could lower operating costs, by using one system that could take care of both execution and order management.
But whether that is the case is still being decided.
“People on the whole are still not sure it is worth combining systems,” she said. “The decision to go with one system versus two is being decided on a case-by-case basis. “
