Fortune Telling for the Buy-Side

Order-management systems will see substantial developments in order to stay competitive and meet the needs of the complex buy-side marketplace of the future, according to a new report by Massachusetts-based TowerGroup.

Enhanced trade blotters, portfolio modeling, post-trade operational support and compliance will be distinguishing factors in the race for market dominance, says Gavin Little-Gill, a senior analyst with TowerGroup.

"The historical paradigm is that an OMS is effectively the trading blotter and provides electronic connectivity to the exchanges. That paradigm has been challenged because the applications have grown up and extended within the enterprise," Little-Gill says. "OMS solutions, in being competitive and meeting requirements of their client base, have increased the breadth of their functionality."

Little-Gill says that trade blotters will advance beyond connectivity to incorporate integration of internal or third-party information and applications. In addition, blotters must accommodate for rules-based and analytics-based order routing, he explains. This will alleviate traders from performing less-complex trades by automatically finding liquidity and best execution.

Portfolio modeling will take a front seat as well, according to the report, with OMS solutions representing performance to investment managers based on industry or internal benchmarks.

Compliance will receive much attention in the future marketplace, says Little-Gill, noting an increased focus on pre-trade compliance due to risks such as client mandates and regulatory issues. However, he notes that most solutions have not yet achieved the combination of thorough pre-trade compliance and the necessary speed for aggressive trading.

Little-Gill also notes that messaging between the buy- and sell-side, as well as connectivity during the confirmation and allocation processes, using standards such as FIX and OASYS, will be increasingly evident in OMS solutions.

Aside from the increased functionality that investment firms will notice in OMS solutions, Little-Gill says that many firms will increase the number of solutions that they utilize, depending on asset classes and products offered. According to the report, firms with over $5 billion in assets will implement best-of-breed solutions by asset class, while firms under that line might invest in integrated solutions.

There is no doubt that buy-side firms are examining and evaluating their OMS solutions carefully, Little-Gill says. "The portfolio-management process represents the competitive difference that an investment manager brings to the table."