Prospects for vendors of trade order management systems (OMS) would appear extremely bright, in light of forecasts indicating that global spending on systems will rise almost 60 per cent by 2007. And, following the summer acquisition by ITG of privately held MacGregor, a US-based provider of trade order management technology, another chapter in the evolving OMS landscape has opened.
With ITG’s recognised expertise of pre- and post-trade analytics, it now has a forum from which it can distribute this know-how in different ways. A joint transition team has been established to review all issues associated with the two companies, but the initial push will centre on integrating ITG’s Triton with MacGregor’s ‘XIP’ product.
Ian Domowitz, ITG managing director and global head of research, says: “The transaction was not undertaken to achieve cost savings, but was a strategic acquisition. It places us deeper into our clients’ workflow and further diversifies our business and revenue streams, and will enable us to integrate OMS and EMS systems. From the feedback we receive and industry surveys, it’s clear that institutions want integrated order management and execution solutions.”
Trade order management systems started out as portfolio management systems in one way or another, but there was never a big focus on getting the execution management directly into the order management. In the 1990s they started to take hold in earnest, but with only the biggest asset management firms able to justify the tab.
More recently, OMS have trade blotters associated with them but, as Mr Domovitz points out: “It’s a question of the extent to which the execution management integration is accomplished within the OMS.”
Andrew Freyre-Sanders, head of algorithmic trading, EMEA, JPMorgan in London says, “There has been a big demand on OMS’s to incorporate trading analytics, which adds significant colour and decision support. Historically, OMS’s have provided centralised platforms for dealers to manage their workflow, but [recently] they've tried to come off the curve and compete on the shelf space. OMS providers are beginning to add analytics to their offering. To speed this up they have begun working with providers such as brokers to integrate analytics into their offering, and in time they will provide a full suite of their own. While OMS are on the desktop, they lack analytics.”
Estimates from Celent Communications, a US research and advisory firm, suggest that the total global market spend for trading systems stood at $445m as of year-end 2004, with the projected outlay to surpass the $700m mark in 2007.
There has been something of a blurring in what constitutes OMS and execution management systems (EMS). Normally, there is a ‘suite’ connotation when trade order management systems are referred to, which encompasses portfolio modelling, a trade blotter and compliance. Recently, the term execution blotter has been used to suggest that it does “more and does it better”, says Denise Valentine, an analyst at Celent Communications in New York and author of Trading and the Portfolio System Suite: A Survey (2005).
Hybrid role
The term can also be used for something less, as in the case of TradeScreen, which is an execution blotter only. Confusingly, trade blotters can also form part of a suite as an execution blotter, providing fixed connectivity, direct point-to-point or point-to-hub depending on the particular product and the counterparty involved.
Ms Valentine says it should be noted that ITG is a hybrid in being both a technology provider as well as an agency broker.
“It’s not a case of night and day. So, ITG was really coming at this from a different perspective. Although innovative through Posit, with changes taking place in that market place, it was all the more reason why they asked themselves what they should be doing differently, in order to diversify their product line.
“When ITG purchased MacGregor, it entered a different realm of technology, as MacGregor is a full suite while Triton is an execution blotter, which has a meaning in life, in that its purpose is to serve the trader,” adds Ms Valentine.
A full portfolio-trading suite is a different animal since it addresses not only the trader but the portfolio manager, the compliance officer and the corporate office. There are additional functions that are meaningful across an asset manager’s functional areas, notes Ms Valentine. The compliance component, for example, can be sold as a stand-alone product.
Celent’s study, which canvassed opinion from 23 financial institutions including retail and institutional asset managers and hedge funds, highlighted that with a greater choice of options today for some form of electronic access to the securities market, costs were no longer seen as overly burdensome. That said, with the high end of the market saturated, vendors are likely to shift their attention downstream to mid-tier asset managers.
The push for integrated trading and portfolio management suites “will be critical enablers of broader access going forward”, with Celent expecting the integrated model having the most appeal to managers with $10bn-$49.9bn in assets under management.
Respondents signaled a general enthusiasm about integrated suites and were open to reviewing new product offerings. Among the large financial institutions with multiple trading solutions, an interest in consolidating vendors was expressed. Following the MacGregor acquisition, TimesSquare Capital Management, a manager of $5.7bn in assets, announced this August it was replacing its trade OMS system with MacGregor’s ‘XIP’ Order Management Network via a third-party vendor. Previously portfolio management, trading and compliance components were provided by the Charles River Investment Management System.
The survey revealed that in five cases firms used more than one OMS - typically MacGregor and Charles River - with a solution’s inability to deal with different asset classes (particularly equity versus fixed-income securities) cited as a key reason for duplication. While running dual systems may be “a thing of the past”, it may still take a further year or so for this tendency to fade.
Alisdair Haynes, CEO of ITG Europe, says: “End users are very likely to benefit because if you can start to integrate systems and technologies, then it has to be more powerful. Whether this translates into a change in price is an altogether different matter. But in linking the trade creation cycle with trade completion cycle through closer OMS/EMS integration a very comprehensive tool kit results.”
