Making Connections
When it comes to order management systems and direct-market-access technology, the name of the game is integration, as the two technologies look to meld into a single functioning unit. Just about all the major OMS vendors are scrambling to build deeper bonds with DMA vendors, and DMA vendors want to ensure that the top order management systems work well with their technologies.
OMS vendors control the desktop. DMA vendors and the broker-dealers who serve the buy side view the OMS vendors as key to extending their relationships with buy-side firms. "What we're seeing is the next step in enabling the buy side with greater trading tools and greater precision tools," says Bob Iati, an analyst with TowerGroup in Needham, Mass.
The move to add value to the desktop, whether it's trading algorithms or direct-market access, puts OMS vendors in a central spot. "The buy side doesn't want to have 12 pieces of software on its desk," says Larry Tabb, who heads The Tabb Group. According to a recent report by The Tabb Group on buy-side trading, order-management systems have become "ubiquitous," with large and medium-size buy-side firms all reporting that they use them in some fashion.
Though the phone still plays a primary role in communications between the buy side and brokers, telecommunications are quickly giving way to electronic order flow via Financial Information Exchange, also known as FIX, which allows investment firms to freely swap information about trades. The Tabb report found that large firms presently route more than 50 percent of their order flow to brokers using FIX, followed by 34 percent of medium-size firms and 23 percent of small firms.
Moreover, the buy side's ability to connect directly to markets is improving: 60 percent of large firms say they have direct-access capability, and 71 percent of medium-size firms report the same. Even 38 percent of small firms report having such ability.
Doug Dixon, a trader at Aronson Johnson Ortiz, a Philadelphia-based institutional investment manager that manages more than $15 billion, says, "All of our brokers connect via FIX." Additionally, the firm has the option to send an order to the floor for its NYSE trades or to a broker to work the trade. "We tend to think that, at this point, most systems can route to most markets. So, from our perspective, using a Lava or Real Tick is really not that big of a deal."
Dixon adds, given the proliferation of direct-market access options, that it will be hard for the OMS vendors to include all the direct access players. "I can't imagine they would integrate them all - there's so many."
Strength in Numbers
Whether the OMS vendors will be able to join forces with all the DMA providers remains to be seen. But they are certainly trying.
For example, EZE Castle's integration with REDIPlus is more than a FIX link. It's embedded in EZE Castle's console in one seamless fashion to provide order management, smart order routing, direct-market access and real-time market data in one place. But EZE Castle's deal with SLK is only one example of how OMS vendors are getting closer to DMA providers.
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