As electronic trading volumes in equities continue to increase, there is growing concern among buy-side traders over the ability of traditional order management systems (OMSs) to keep pace with heavy transaction volumes. To keep up with the thousands of order fills and skyrocketing real-time data volumes resulting from algorithmic trading, and to secure the ability to cancel and replace orders in a fast market that moves in milliseconds, buy-side firms are installing execution management systems (EMSs) alongside their OMSs.
Over the years, buy-side firms have relied on their OMSs to provide connectivity to brokers via the FIX protocol, supply access to brokers' algorithmic trading strategies and send orders to various exchanges, ECNs and alternative trading systems (ATSs). But under Regulation NMS, some fear that trading volumes in listed securities and associated market data volumes could double or triple.
Several buy-side sources say current OMSs have trouble handling real-time updates of transactions as fast as the EMSs are returning the fills. "The issue is more one of speed -- how fast are you able to cancel and replace those transactions?" explains Gavin Little-Gill, research area director of Needham, Mass.-based TowerGroup's securities and investments practice. "You want that real-time trading capability." >>
"Traditional OMSs tend to have performance problems," says George Mar, equity systems manager at Jersey City, N.J.-based institutional investment manager Lord, Abbett & Co. When Lord Abbett began using the Macgregor OMS in 1999, Macgregor had just implemented the FIX network, and performance was good, Mar recalls. But as time went on, he relates, Lord Abbett's workflow started to shift toward using ECNs, ATSs and algorithms, and the OMS has been challenged to keep up.
Although the traditional OMS is able to keep up with hundreds of fills coming back on a given order, "The performance is behind from the front-end user's perspective," Mar continues. For example, the OMS makes it difficult for a trader who already has executed 50,000 shares of a 100,000-share order to modify the order (e.g., put a limit price on it) or cancel it. "The fills are coming constantly," says Mar. "[The trader] can't make that change."
As a result, the buy side is beginning to question the future of the traditional OMS. Should it take on more execution functionality or hand off execution to the EMS? 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