Meridien Report Says Buy-Side Firms Need an OMS

Buy-side firms must embrace order-management systems if they are to achieve straight-through processing by the time a one-day-settlement cycle is mandated in 2005, says Damon Kovelsky, an analyst with Meridien Research.

Kovelsky, co-author of, "The Buy-Side OMS: Several Steps Closer to STP," says that an OMS can help streamline the trading process and reduce headcount by collecting several aspects of the trade cycle under one application.

"(Buy-side firms) are going to need an OMS," says Kovelsky, "There is no way around it."

That is because a typical OMS can perform order entry and analytics in the front office, compliance, order management and position keeping in the middle office, and asset allocation and confirmation services in the back office. Also, the OMS may be one of the easiest ways for buy-side firms to achieve virtual-matching-service connectivity (GSTPA, Omgeo).

The main OMS vendors identified in the report are Advent (Moxy), Charles River Development (CRTS), Eze Castle Software (Trader Console), Linedata (Longview), Macgregor (MFTP), SS&C Technologies (Antares), SunGard (Decalog) and Thomson (Oneva).

In terms of differentiation, Kovelsky says vendors compete in areas like compliance functionality, ability to handle different asset classes (fixed-income capabilities are becoming more and more important) and the ability to process different currencies.

Multi-currency capabilities and multiple-asset-class functionality are important, even for buy-side firms that do not focus on those areas. For those dealing with equities, traders often wish to hedge an equity trade by acquiring a corresponding fixed-income security or hedge a foreign-exchange transaction by dealing in another currency. An effective OMS must allow the manager or trader to do all of these things, says Kovelsky.

All vendors have their strengths and weaknesses. As Omgeo is a combination of DTCC's TradeSuite business and Thomson Financial ESG it stands to reason Thomson's Oneva will have a particularly effective interface with Omgeo's Central Trade Manager, notes the report. Also, Charles River is strong in compliance and Macgregor in handling fixed income.

Though necessary, the systems are not easily affordable, says Kovelsky. "(Buy-side firms) are going to have to spend the money ... and (these systems) are not cheap." He notes that, at a minimum, OMS systems run six figures in price. For example, says Kovelsky, Salomon Smith Barney (a Citigroup company) recently spent over $1 million on an OMS.

In terms of buying an OMS, Kovelsky says a firm should examine how it handles trading and what value it adds to those trades. The firm should then look into the OMS marketplace and find a vendor, which specializes in providing that aspect of order management.

Kovelsky adds that Meridien Research, a consultancy covering the impact of technologies on financial services, decided to analyze the OMS space at the request of its buy-side clients.