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OMS, EMS Technologies Rise to Market Challenges
October 17, 2007
Order management systems (OMS) and execution management systems (EMS)--two key categories in the Securities Technology Ranking--illustrate how quickly technology can evolve in response to market developments, and how versatile vendors can be in providing innovative solutions. Some of the innovations are blurring the lines of demarcation between the two types of systems.
Several developments have spurred the need for OMS and EMS: The FIX, or financial information exchange, protocol opened the door for electronic trading, electronic communications networks expanded the number of trading venues, and high-speed algorithmic trading necessitated high-capacity systems to place trades and track results.
As dark pools of liquidity have proliferated, electronic execution has become vital to firms seeking to tap all available liquidity. And the best-execution requirements of Regulation National Market System (NMS) in the U.S. and the Markets in Financial Instruments Directive (MiFID) in Europe are compelling firms to not only maintain trade data, but also the prices that were available at the time of the trade.
Some boutique firms still place phone orders with sales traders who work them, but most buy-side firms rely on order management systems, and OMS vendors are adding execution functionality to keep their clients loyal.
Traditional order management systems were built in a different era, 15 years ago, according to Sang Lee, managing partner at Boston-based research firm Aite Group. "They weren't built for today's market reality in terms of speed and the number of executions that traders need to do," says Lee. "The EMS vendors rose to meet those challenges."
John Lynch, senior product manager at Burlington, Mass.-based OMS provider Charles River Development, says clients can manage separate order management and execution management systems if they have to, "but we are hearing that they struggle with the integration and they would prefer to consolidate the functionality on one screen." Charles River has been upgrading its OMS to include execution.
Keith Jamaitis, director of OMS product management and client services at Citigroup subsidiary Lava Trading in New York, agrees that a fully integrated system from a single provider makes life easier, especially with the audit trail needs of Reg NMS. "It is advantageous to have a matched set of components all from the same source when it comes to surveillance of your trade-through requirements," says Jamaitis. "You have to match orders that have been broken up by smart routers with data to prove or disprove trade-through status. With dissimilar services it will be difficult for firms to show their trading details in a meaningful way," he says.
Says Joseph Wald, CEO of agency brokerage and trading software developer EdgeTrade: "They are built very differently--OMS is designed for storage and maintenance and is usually installed in an office, while EMS is designed for speed and flexibility and is delivered" on an application service provider basis. "I think clients will want the best of breed," he adds.
New York-based EdgeTrade has "built the network infrastructure and the quant tools you need to get to every share possible, so we can help clients source liquidity," says Wald. "We have the system and methodologies to make sure that they are getting the best execution."
One challenge in finding best execution is that different destinations have different rules; if a buyer simultaneously sends orders to several venues, executions may take place over time. "Completing the order in the best fashion and not overfilling creates very difficult technology challenges we have been able to overcome," adds Wald. Many point to this as a perfect example of the value of integrating OMS and EMS.