Change Comes to OMS/EMS Space Amid Weak Trading Volumes

There's a lot of change percolating in the OMS and EMS space stemming from anemic trading volumes, commission shrinkage, and the buy side's need for top notch, low-latency access to fragmented liquidity venues.

Asset managers are wrestling with technology costs and are looking for ways to "rationalize" their expenses for order management and execution management systems. These are mission critical systems, so this decision isn't taken lightly.

Mutual funds and traditional asset managers still need an OMS to manage their orders, run pre-trade compliance and track their commissions, but the question is, will they trade the current one in for a hosted model as vendors suggest?

Many OMS and EMS providers now offer a managed service that handles FIX connectivity and software maintenance. Yet I spoke to two buy side traders who installed the Charles River platform and chose to run their systems in-house.

Buy-side firms that have multiple EMSs are also said to be consolidating those platforms.

"I genuinely believe the single dealer platform will be dead," said Robin Strong, director of buy side strategy for Fidessa in an interview. Sources point to Goldman Sachs spinning off RediPlus as an independent platform, as an example of the ultimate, broker-neutral trend.

Sluggish trading volumes could make it harder for brokers to subsidize the costs of their client's execution management systems. Many of the vendors have FIX order routing networks, and that is how the buy side routes orders to the sell side's blotter or algorithms.

Yet technology providers tell me there is still a "replacement market" for OMSs and EMSs. Many asset managers are turning to the Bloomberg buy-side EMS (EMSX) because it is free to Bloomberg subscribers. However, they must pay for Bloomberg's buy-side OMS, AIM.

One of the leaders in the space, Eze Castle added 40 new clients this year. Interestingly, ConvergEx has put Eze Castle and RealTick up for sale. Sources say the firm is looking for $800 million to $1 billion for them.

ConvergEx is selling the trading platforms because a private equity firm, GTCR, wants to cash out. In addition, ConvergEx had some regulatory problems with a Bermuda subsidiary, and through the sale, wants to create value for shareholders, according to sources. Even in a tough market, ConvergEx could command this price tag, the highest amount ever paid for an OMS or EMS.

Meanwhile, debate continues on whether the OMS and EMS can be integrated into a single platform, while retaining the strengths of what each are good at. ConvergEx and Charles River say they have built the OEMS. Over time, many vendors expect the convergence of OMS and EMS to happen. But for now, it's still a work in progress.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio