Buy-side order-management systems (OMSs) are being impacted by demand for electronic trading, continuous compliance and new requirements to handle complex derivative instruments, say vendors exhibiting at the SIA Show.
Electronic trading is probably the number one trend driving the initiatives at Charles River Development (booth #1760), says Tom Driscoll, the firm's vice president of sales. "We're seeing interest in connectivity to ECNs [electronic communications networks] as well as crossing networks and alternative trading systems like LiquidNet and Harborside+," says Driscoll.
On the fixed-income side, there is more demand for interfaces to MarketAxess and TradeWeb and an uptick in the usage of the Financial Information Exchange (FIX) protocol for fixed-income. "Fixed income trading via FIX was little-to-none, and in the last year or so it started to creep up," says Driscoll.
"The OMS becomes the cockpit that allows connectivity to all these destinations," says Driscoll. What's driving the connectivity is the need to get best execution, he adds, noting that it typically involves some level of electronic trading, particularly with crossing networks, because that's where the buy-side is executing large block orders anonymously.
"Best execution is clearly one of the trends that most people are pursuing, particularly from the angle of gaining access to liquidity and more sophisticated execution tools," says Eric Soderberg, vice president of marketing at Macgregor (booth #2011). "You have some people adopting some of the sell-side algorithms as buy-side tools," he says.
Since firms can't achieve best execution if they can't measure it, says Soderberg, Macgregor has been working on incorporating transaction-cost analysis (TCA) providers, such as Elkins McSherry, ITG and Plexus Group, into the OMS. Macgregor built the Universal TCA adapter, says Soderberg, "which makes it very easy to get data in and out of our product and into four or five of the major TCA providers."
As buy-side firms seek to diversify their offerings, OMSs are being asked to handle every instrument, including derivatives. Traditionally equity- and fixed-income-oriented, Charles River is receiving requests to handle currency forwards, swaps and other derivatives "more fluidly in the system," says Driscoll. Though it handles derivatives already, it's making enhancements in order to trade, process and manage these instruments.
With all the regulatory focus on buy-side compliance, Annie Morris, senior vice president, Linedata (booth #2118), says a top initiative is the integration of compliance and risk-monitoring across the investment life cycle. "There is no longer a split between pre- and post-trade [compliance]," Morris says. "There is a tremendous need to integrate all compliance from order generation through trading to the post-trade side and to batch processing," she says. Toward that end, the vendor has created a new tool called Linedata Compliance, which integrates the pre-trade tool from LongView with Spice, a post-trade European compliance system, so that it thoroughly handles all rules.
To make it easier to pull data from its system, Charles River has exposed its compliance software via Web services and provided real-time XML (Xtensible Markup Language) messaging to integrate with other order-management and portfolio-management systems, says Driscoll.
Linedata sees demand for an application-service-provider (ASP)-based OMS as a trend among smaller money management organizations that don't have large IT staffs. Linedata launched an ASP version of its LongView Trading system earlier this year in response to interest from smaller investment-management firms. "We have taken the best-of-breed tools and offered them as an ASP," says Morris, noting that the ASP version encompasses LongView's three main modules: portfolio modeling, compliance and trading.
Going forward, Driscoll agrees there is going to be demand for ASPs. He says cost is still a challenge, however, because there are not enough economies of scale yet and people don't want to pay a lot of money for it. On top of that, "There are many investment managers who do not want their trade data or holdings data leaving their premises," he says. Unlike the back-office outsourcing strategy, which is driven by cost savings, both time-to-market and quicker access to new functionality, such as interfaces to algorithmic trading strategies, are boosting interest in the ASP-based OMS, contends Morris. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio