The regulatory environment and the structure of the securities market are in a state of transition. The upside for asset managers is increased autonomy. The downside includes multiple systems, a proliferation of execution venues, a change in required skills on the desk, and the need to keep informed about the continual changes in market structures and their impact.
To help asset managers and hedge funds weather this new trading environment, the latest execution management systems are reconfiguring traders' desktops, packing in tools and options. And more choices, with vendor introductions from overseas and new product launches, are still afoot.
Investment management trading technology includes three categories. First, there are trade order management systems (OMSs). Systems are offered by independent trading vendors and integrated portfolio suite providers, such as Charles River Development and Advent Software, which typically sell the OMS both as part of a full front-to-back portfolio suite and as a stand-alone module.
Another category of trading system is the newer execution management system (EMS), examples of which include Portware, GL Trade and Fidessa. The EMS has its origin as a pure trade-execution blotter - a mechanism to evaluate market activity across multiple venues at a glance and to execute with as much speed as current technology can provide. A third type of technology category is the risk/trading solution, such as OpenLink Financial and SunGard FrontArena. These systems do not universally provide a front-office-user interface for order management, routing or connectivity.
Total global spending by asset managers on purchased trading systems will grow from $634 million in 2006 to $757 million by 2010, an average annual growth rate of 4.6 percent. Overall, solution prices continue to decline as vendors move downstream to capture small to midsize clients. And while the top end of the trading technology market may be saturated, solution switching could be active if vendors do not keep up with the latest enhancements in execution. Vendors will consider partnerships and acquisitions to do so.
Geographically, Europe and Asia offer the most growth opportunity for providers of trading systems. For many firms in Asia, trade automation is in its formative stages. Bloomberg and TradingScreen are popular providers, with other vendors working toward building a presence in the area.