Top 5 Trends in 2010 for Trading & Order Management
January 7, 2010
After the market upheaval of the last 18 months, the leading trading and order management trends for 2010 will be begin to move from cleaning up messes to setting a foundation for achieving greater efficiency in operation, transparency of financial condition and compliance with regulation.
The trading environment will be shaped by increased regulation and investment oversight, greater focus on improving operational processes and a bent on deciphering how technology can be leveraged to process more transactions than ever with considerably fewer resources.
Trend #1 – Increasing Regulation
Metaphorically speaking, if financial markets fell down the mountain in late 2008, they struggled in 2009 to regain their footing in their attempt to ascend again. In an effort to re-establish investor confidence, you can expect 2010 to be a year marked by increasing regulation.
Look for traders in 2010 to implement processes that provide greater transparency in order to more efficiently comply with increased regulations as well as give clients more compliance insight into how their portfolio is being managed of their behalf.
Regulating risk should also take center stage in the year ahead as the trading desk will be asked to ensure they have the appropriate amount of systems and processes in place in order to precisely identify their exposure to undesired market movements. In 2010, the more savvy organizations will leverage technology solutions to assist traders to ensure they have appropriate coverage to manage debt and monitor those related processes.
Trend #2 – Greater Investor Scrutiny
Perhaps as much as one-third of the assets in the entire U.S. financial marketplace have disappeared since the fall of Bear Stearns, Lehman Brothers and Bernard Madoff. The rapid asset evaporation of late 2008, which continued into 2009, will make 2010 a year where investors will be increasingly scrutinizing the actions of their traders to ensure they are completing their mission accordingly.
No longer satisfied with quarterly statements, investors in 2010 will demand real-time reporting. Looking ahead, expect not just concern about portfolio performance, but how that portfolio is being managed against models, for example. To buoy that investor confidence, look for traders to invest in more sophisticated reporting solutions that can contribute toward promoting confidence, controls and transparency.
Trend #3 – Technology Continues to Change Playing Field
While the trading industry entered this decade speculating on the ramifications of Y2K, it leaves it debating over another topic: execution management system versus order management system. For the past several years, well-established order management systems have been challenged within the buy-side community by execution management systems because of their ability to provide functionality, such as smart order routing, as well as the ability to connect to multiple trading venues, provide pre-trade transaction cost analysis (TCA), market data and real-time pricing. In 2010, expect the OMS vs. EMS battle to continue, but don’t expect finality as trading organizations must find the budget to make any possible changes and analyze which system works best for their scenario.
In the past decade, technology has contributed to the fragmentation of liquidity venues, with the number of dark pools growing to more than 40. These pools account for some 10 to 12 percent of securities trading in the U.S., according to New York-based consulting firm Tabb Group. It’s simply not efficient and sustainable to have that many offering this service. Look for considerable consolidation in the number of dark pools in 2010.
