With the continued evolution of capital markets, market consolidation is the commonplace order. Smaller technology vendors are being acquired by larger vendors at an alarming rate. The latter are also expanding their offerings through mergers and acquisitions to reduce time-to-market for new solutions and features.
Over the course of the past 24 months, we’ve seen billions and billions of dollars change hands, not just from the mergers of tech companies, but financial firms recognizing the need to become more technology-focused—I can think of eight off the top of my head. To fully comprehend the impact of consolidation in this space, let’s consider the main rationale behind it. I see three basic motives for growth through consolidation:
- Increasing customer bases Monolithic companies may acquire a firm for their customer relationships, rather than adding technology or resources.
- Improving buying and negotiation power Smaller firms struggle against larger firms with stronger negotiation power in RFQs; an acquisition allows the infrastructure to scale in order to land larger global clients.
- Adding efficiencies and removing redundancy Extreme cost cutting of systems and resources, staff reduction (involuntary or voluntary) and product end-of-life decisions can produce immediate budget gains.
How does vendor consolidation impact you and your clients?
Vendor consolidation can be great for your organization, e.g. by adding solutions options, contract consolidation with price reductions, expanded service and support, and faster implementation of new products and services.
But, more often than not, there are negative impacts as well. For example, you might be strong-armed into signing for a new, yet unproven, system that does not fully address your technology or business needs.
What if your new vendor fails to meet the deadline? Or if their service falls flat or your service level drops? What if your superiors demand answers to questions you can no longer answer? What if your clients’ experience changes negatively because you decided on that particular OMS provider? What if you must ask clients to make a change yet again?
This line of questioning is instrumental to the decision making process. If you fail to consider the responses to these key questions, you are placing a lot of risk into the health of your customer relationships.
Is your client connectivity managed by your OMS provider?
Now we’re delving into an area we’re all very familiar with: customer satisfaction and success. Both are crucial to our own organizations management and growth potential. One area this is prevalent in is the OMS/connectivity space. It’s commonplace that your OMS vendor also provides client connectivity in a single (bundled) package. FIX connectivity is not a core capability of most OMS providers; it is usually an add-on revenue stream. This has been a point of contention recently, as we’ve seen an increase in migrations of broker’s client connectivity to independent service providers.
How confident are you that the risks to your and your clients during a migration have been addressed?
Before you ask your clients to migrate, consider these fundamental migration risks:
- Connectivity risk Does the OMS vendor have the FIX expertise required to quickly and easily add trading counterparties? Do they provide tooling which enables you to control the onboarding experience should you choose?
- Set-up risk Will all enrichments and rules you have in place today migrate to the new vendor, and does the vendor have proper testing tools to verify those enrichments and rules prior to migration?
- Platform risk How resilient and global is the platform? Does the vendor have any certifications on its resiliency capabilities and are they global in scale to meet your expanding business needs?
Ideally, brokers should decouple inbound client connectivity from their OMS to mitigate these risks and to find the most stable, innovative connectivity provider. The ability to choose an independent connectivity provider is the ultimate insurance policy. Decoupling ensures your client flow is “portable” when adding a new OMS vendor or changing OMS providers again—migrations will be seamless for your clients.
This practice also insulates from OMS vendor risk. If your OMS provider goes out of business, decreases its support or discontinues its product, this will not impact your clients. Additionally, decoupling OMS from connectivity allows you to select providers for each area ensuring the best match for your own needs and those of you clients. The benefits of unbundling can be summed up into these categories:
- Align the function with subject matter expertise.
- Access to better connectivity tooling.
- Benefit from more advanced service levels.
- Increase flexibility and reliability.
- Gain greater transparency into FIX messaging.
I implore you to consider unbundling client connectivity from your OMS provider to protect your firm and your clients. Decisions about connectivity and OMS solutions are complex, long-term decisions that should not be taken lightly. Don’t let further consolidation among technology and data vendors catch you by surprise.
