A new Tabb Group study finds that investment banks and brokers are foregoing order management system (OMS) upgrades in exchange for aggressive cost cutting.
Though large and small shops say improving OMS and execution management system (EMS) functionality is a top priority in the next 12-24 months, the research report (registration required), commissioned and released by SunGard, revealed little action has been taken or planned. The study is based on surveys and interviews with 111 individuals from a broad range of brokerage firms and investment banks in North America, Europe, and Asia.
Nearly 55% of respondents had not had any significant type of technology move around their OMS in two years, and about 40% had not made any changes in four years. However, respondents also identified a need to refresh technologies and said order management technology will be a higher priority in the coming years. It is a clear contradiction in results -- willingness vs. desire, with no plans to act on that desire.
Beau Alexander, head of product management of SunGard's brokerage business, which commissioned the study, said it found trading desk users were generally resigned to suboptimal functionalities and work flows.
That really is kind of result of fear of total cost of ownership of having to go through a tech initiative to actually restructure and update technology.
When you think about the age of some of the technology being run across Wall Street, you do have outdated languages and protocols, and not even some of the latest version of some standards of programing languages. That in and of itself leads to slowness and poor performance, so it's necessary to stay ahead of the wave of what's happening in the industry. There's no shortage of regulations or new information demands. The people that are processing information faster have a definite advantage.
One finding that stuck out is that only 30% of boutique investment firms and regional investment banks are planning any OMS technology initiatives in the next 12 months. Also, a significant percentage of boutiques and regional investment banks have neglected to make meaningful upgrades to their equity OMS systems in more than two years, according to the study.
"There's a big difference in priorities. It stands out because those two areas build businesses around specializing in particular areas -- service and customer base in their geographical area -- and the boutiques specializing in niches in marketplace and becoming exceptional providers of execution in that," Alexander said. "As other people's technology and ability to reach different markets and consume different types of information improves, the sort of sweet spot they were in no longer is an advantage to them. They become less applicable as time goes on if they allow their technology to lapse, and the results of this survey suggest that segment is heading to some major weaknesses."
Other key findings:
- Respondents were less satisfied with current OMS functionality for futures, foreign exchange (FX), and fixed income than they were for cash equities.
- For a large number of small firms, OMS functionality is focused only on equity execution.
- Top of mind for sell-side firms is the desire to consolidate OMS functionality across all asset classes.
- In addition to maintaining at least one OMS, many sell-side firms report using an EMS (in some cases, several) to offset limitations in OMS capabilities.
- In specific categories, such as performance tracking and profitability monitoring, those "not satisfied" spiked to nearly 50% of respondents.
- In light of varying levels of satisfaction, total cost of ownership (TCO) plays an outsized role in the decision to remain with a suboptimal OMS instead of migrating to a different platform.