There's a perennially popular joke among New Yorkers, the short version of which involves a Zen master going up to a hot dog vendor and demanding, "Make me one with everything!"
Asset managers have increasingly been asking the same of their technology providers: an integrated platform that does everything a classic order management system (OMS) can do, plus everything today's increasingly sophisticated execution management systems (EMS) can do.
Wait, you say, haven't we been talking about this for years? Yes. And now, it seems, the day of true EMS/OMS consolidation has arrived.
As EMS/OMS integration and its evolution are topics near and dear to our hearts, we recently commissioned the good folks over at Aite Group to do some research on the market, and here's what they had to say:
"OMS/EMS integration will likely become the benchmark, not the exception, as heads of trading desks realize they are losing their trading edge and as compliance departments realize existing and older solutions expose the firm to unnecessary risk." Let that sink in for a moment. But first, some background.
The history of EMS & OMS
Traditionally, the OMS has functioned as the central hub of all trading activities for the buy-side, thanks to its focus on allocation processing. Buy-side OMSs were first launched in the mid-to-late 1980s as a way for asset management firms track orders negotiated over the phone, and to improve on paper-ticket-based recordkeeping. Downstream allocation support features such as position checking, pre-trade compliance, and P&L analytics are only found in an OMS.
As the Financial Information eXchange (FIX) protocol matured in the early-to-mid 1990s, most OMSs added features for electronic order routing to brokers.
EMSs, meanwhile, hit the scene in the late '90s. Rather than acting as trading tools for the buy-side, they were designed to help sell-side brokers and day traders participate in a fast-evolving electronic marketplace. These tools are invested in supporting optimal order execution through direct market access with advanced order types, such as conditional orders, list trading and multi-leg orders. Buy-side interest in EMS tools gained serious traction when vendors began offering global, multi-asset class, broker-neutral platforms.
The first integration efforts
Several vendors have attempted strategic alliances over the past 15 years. But latency, combined with the fragility and complexity of the system architecture, prevented widespread adoption of integrated systems maintained by two different vendors.
Attempts to align strategic priorities, product roadmaps, sales efforts, release cycles, and software development teams proved equally challenging. In the meantime, cost, risk and regulatory pressures on the buy-side have reigned in the number of vendors firms wanted to deal with. Says Aite's Spencer Mindlin: "The unchecked proliferation of trading tools and costs associated with the infrastructure and support required to maintain them has reached the point at which they outweigh the benefits of diversification. Managers are seeking to consolidate their vendor arrangements to one or two strategic partners."
So, is the market there yet?
At last, true integration of the OMS and EMS appears to have finally arrived, Aite found. We're the first to tell you that true integration between the systems is no easy task, but owning our data, technology and process has certainly helped. Elsewhere, folks have advanced converged OEMS and OMS/EMS suite approaches. You've heard us discuss why we think our way — integrated EMS/OMS — is best, so we won't harp on that, but it's worth reiterating the benefits any of these integrated models should bring you:
- Synchronized data structures
- Pre-trade compliance
- Straight-through processing throughout the trade lifecycle
- Strong service support around the clock
A truly integrated EMS/OMS setup may give early adopters a substantive competitive advantage, at least for the time it takes for their competition to select and adopt a new platform. So if you're thinking about consolidating your systems, now's a good time to go out to the market and find out which model is best for you.
Want more background? The full white paper can be downloaded here.
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