From order entry and routing to asset allocation and trade confirmation, the leading order-management systems (OMSs) currently supporting securities and investment firms provide a comprehensive suite of front-to-middle-office functionality. But in the near future, OMSs may have to expand their capabilities to take advantage of up-and-coming trends, such as sector trading and the convergence between order-management and quote-management systems.
Standing near the front of the OMS line today are SunGard Trading Systems' Brass and NYFIX's FIXTrader - large platforms that service sell-side firms in the Nasdaq and New York Stock Exchange communities, respectively.
Brass, an OMS that has been deployed at roughly 80 percent of the market-making firms trading Nasdaq stocks, has been steadily creeping into the listed-equities arena in recent months. Tom King, president of SunGard Trading Systems' Brass operating unit, says that SunGard has been building up Brass' NYSE functionality in recognition of the industry's gradual move towards sector trading.
In the past, securities firms have maintained standalone Nasdaq and NYSE trading desks, comprised of traders that traded in either one market or the other. But increasingly, firms are consolidating their Nasdaq and NYSE trading under a single desk. Under this approach, instead of dividing up stocks based on the market they are traded in, firms are requiring traders to trade stocks by the specific sector - such as telecommunications or technology - that they belong to.
"There is a convergence in the marketplace. Some people in the marketplace are calling it hybrid trading - whereby traders who have traditionally traded only Nasdaq stocks, or only listed securities, are now trading both simultaneously," says King.
SunGard, he says, is in good position to take advantage of this trend, because - in addition to its dominant Nasdaq market share - it has grown its listed client base from 30 to 90 firms over the past 15 months. The vendor also thinks its standing in the sector-trading market should improve via functional Brass upgrades it plans to launch in 2003.
For example, SunGard plans to roll out a new version of Brass, written in the Java programming language, in the third quarter of 2003. What's more, early next year SunGard plans to incorporate indications of interest (IOI) functionality into Brass. That functionality will allow sell-side users of Brass to send IOIs to their buy-side counterparts, via Brass' order-entry screen.
"You'll just click on an order, hit IOI and (Brass) will send (that IOI) to the buy side. We think we will go into beta (testing) with that functionality in the first quarter of next year," says King.
Just as SunGard has established Brass as the OMS system of choice for Nasdaq market makers, NYFIX has carved out a significant sell-side niche for its FIXTrader OMS in the NYSE realm. NYFIX has rolled out 2,000 FIXTrader workstations, in support of roughly 34 percent of the top NYSE sell-side broker/dealers.
Robert Gasser, president and chief executive officer of NYFIX Transaction Services and NYFIX Millennium, says that internally developed proprietary systems are the primary competitors to FIXTrader. "It has deep penetration among the non-proprietary order-management technologies out there. So it doesn't fit, (for example), for a Goldman Sachs, but it fits for a UBS or a Deutsche Bank," he says.
Like SunGard, NYFIX also thinks it may be able to take advantage of the trend towards sector trading because of its ability to provide OMS services for both NYSE and Nasdaq securities.
Today, FIXTrader's Nasdaq market share is almost non-existent, but in 2003 Gasser expects NYFIX to take a slice of Brass' over-the-counter OMS business, thanks in part to FIXTrader's full compliance with the FIX messaging protocol. "We're not a firm that just talks about being FIX compliant ... . Anybody that speaks FIX can connect to us, and we can connect to them," he says.
One of the hot trends that could emerge over the next 12 months, says Gasser, is a convergence between OMS and quote-management systems. QMS applications, such as Lava Trading's Lava Trading Floor and SunGard's Universal Market Access, aggregate quotes from multiple liquidity pools - including ECNs, market makers and primary and regional stock exchanges - on a single screen.
SunGard has already built an interface between Brass and UMA's virtual-quote montage, and Gasser believes that there is the potential for mergers between OMS and QMS vendors. "A lot of quote managers would love to be in the order-management space, and a lot of order-management guys would love to be in the quote-management space ... . (So) what you're going to see is the QMS and OMS space converge in the Nasdaq realm," he predicts.
However, Damon Kovelsky, an analyst at Meridien Research, doubts that there will be any significant mergers between QMS and OMS vendors. A far more likely trend to take off, he says, is OMS consolidation at securities firms.
Instead of using separate OMS platforms to manage their equity- and fixed-income trading desks, Kovelsky says, some firms will adopt a single platform. By using one OMS to manage all of their stock and bond trading, he says, these firms may be able slash costs.
"Sell-side firms have cost cutting to do, even if the markets pick up," he says. " So if FIX is actually on time with (version) 4.4, (which is scheduled for release this month), I think you are going to start to see elements of (OMS) integration between equity- and fixed-income desks."