With buy-side traders turning to faster execution management systems (EMSs) and installing them on the desktop next to their order management systems, the OMS vendors have been scrambling to provide EMS functionality.
This week, LatentZero a supplier of front-office systems for the buy-side, said it had integrated EMS functionality into its buy-side OMS. The company's OMS, Capstone Minerva, now has a fully integrated EMS trading module designed for asset managers, said a release.Installing standalone EMSs that must integrate with the OMS has proved problematic. Some buy-side firms that have installed standalone EMSs have wound up re-keying orders from the OMS into the EMS, which is time consuming and error prone.
"This means buy-side traders no longer have to stage orders into third-party EMSs, manage orders in two of more separate systems or be hampered by inefficient error-prone workflow," said the LatentZero release.
The move appears to be a response to buy-side clients demanding EMS functionality to handle the growth in electronic trading volumes as well as the need to cancel and replace orders in fast markets moving at millisecond speed. This is also coupled with the need to capture the huge volume of order fills coming back from algorithmic trades into their OMSs.
Commenting on the news, Sang Lee, managing partner at Aite Group, says, "I think the market is trending toward a more integrated EMS/OMS. The question comes down to who is best positioned to present such a platform," he says. OMS vendors could try to build something on their own like LatentZero has done and what Charles River is doing, he notes. Or, they could buy an EMS. Some of the potential acquisition candidates in the EMS space are Aegis Software, Inforeach and Trading Screen, he notes. "Either way, most of the major OMS are compelled to either develop or purchase EMS functionality built on top of their existing OMS," he says.
According to Latent Zero's release, the new EMS/OMS platform provides aggregated liquidity and instant access direct from the OMS blotter to DMA, broker algorithms, alternative trading systems, as well as broker care/principal orders.
The trend is evident among some of the agency brokers with ITG buying Macgregor, the buy-side OMS, and also owning Triton and Radical, two EMSs. Then, BNY ConvergEx Group houses both Eze Castle and Sonic, the DMA technology, notes Lee.
However, there is a concern that tying an EMS to an OMS could bog down the systems further. In a story published in Wall Street & Technology last November, ""Buy-Side OMSs Face the EMS Threat," several buy-side traders and analysts were debating whether or not building the OMS into an EMS was a wise step. Several sources felt it could end up slowing down the EMS, which would defeat the purpose.
"The EMS argument is that OMS vendors have a legacy architecture if they tried to build out EMS functionality they would have performance issues," says Lee. On the other hand, the OMS guys would say that was true a few years ago but they have re-architected their systems, notes Lee. The OMS vendors also believe that the breadth
In the release, Richard Jones, LatentZero's CEO addressed this point when he said, "Minerva's real-time architecture, which overcomes the limitations of standard database technology, is able to handle very high transaction volumes and market data throughput in real-time, which is unique in the buy-side OMS space." Jones added that the system supports fill volumes on the heaviest trading days and can be installed on a global basis with no loss of performance in any location.
What matters most in determining whether a firm needs a standalone EMS would be the frequency of trading and the kind of strategy, advises Lee. A stat arb hedge fund may want an EMS, for instance, but a hedge fund that is purely long/short doesn't need an EMS, he says. "There is a certain segment that will insist on using a RediPLUS," he says.
On the other hand, Lee says traditional asset managers that put an emphasis on compliance features will not go outside their OMS, so they are prospects for the combined EMS/OMS. 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