This is the second part in a series that explores the past, present and future of Order Management Systems (OMS) and the closely related Execution Management Systems (EMS). We cover these trading tools mainly from a sell-side perspective.
As financial markets change, new demands on trading technology appear. This includes the functional requirements of the OMS. The original basic purpose of the OMS, to facilitate order management throughout the trade cycle, remains the same. But today, much more functionality is needed to provide this support, and to match the growing complexity of trading. The performance requirements have also increased, with low latency execution seen as a tool for gaining competitive advantage
Fragmentation of markets, fueled by new market regulation such as MiFID, is a major driver factor in how increasingly complex trading practices surfaced. Finding liquidity and cost-efficient execution against that liquidity became an essential requirement from firms. Trading technology vendors responded by adding new functions such as Smart Order Routing and execution algorithms to their OMS products.
Enter MiFID II
Few market regulations have been as ambitious as MiFID II. The updated EU framework will extend regulation into new asset classes and also rectify some of the unintended consequences of the present regulation.
In several areas, MiFID II goes into greater detail than its predecessor, with added measures for record keeping, reporting, transparency and risk control. The regulatory framework also expands coverage into new asset classes, which to some extent have been unregulated, at least from a Best Execution point of view. For instance, Fixed Income trading will experience considerable changes.
The sell-side must also address the unbundling of research services, as fees will be separated from execution or brokerage. This will put the current business models for many investment firms to the test. In an unbundled world, buy-side clients may execute with one counterparty and receive research from another.
Attracting order flow will come down to the ability to meet regulatory requirements, such as best execution, and to continue improve on cost efficient execution to compensate for the higher overhead. A well-performing OMS will be an essential tool for achieving this, which requires a comprehensive functional upgrade to match the new market structure and regulatory requirements following from MiFID II. The broader scope of regulation also suggests that a new generation of integrated EMS-OMS platforms will appear, which should attract many firms.
Expanding trading technology stack
Another important factor to consider is reliability, which hinges on the quality of the technology that constitutes a broker’s trading infrastructure. Today, this consists of interrelated components such as FIX engines, order management systems, market data platforms, smart order routers, algo engines, and more.
As systems are becoming more complex, each additional component in the trading technology stack represents a potential source of latency or failure – scenarios that could impact execution and, in turn, cause clients to defect to another broker.
The gradual influx of technology has left many users with legacy issues; multiple systems which continuously need to be either integrated or updated.
Instead of employing multiple systems integrated via FIX, next-generation OMS-EMS solutions should offer new architectures to enable deeper and seamless integration. This stems from both performance/latency issues and user requirements on usability and workflow.
Key requirements of a future-proof OMS-EMS:
Execution Participants of the GlobalTrading roundtable “Future-proofing trade execution systems” discuss their key takeaways from the event, including the challenges posed by current and future regulation, the buy vs. build dichotomy, the need to maximize the impact of technology, the challenges and opportunities posed by technology and current trends around system consolidation. Interviewees include: – James […] March 20, 2018
Execution Regulation, technological advances and behavioral changes mean that trade automation will increase, which will in turn force systems and their providers to become more agile, agree speakers at a GlobalTrading roundtable. The degree to which firms should standardize and the merits of outsourcing, however, remain controversial topics. This video and article sum up the key […] March 15, 2018
Execution Lars Wiberg, VP Strategic Research Trading and Trade Execution, discusses pre- and post-MiFID II trends in the OMS-EMS arena, covering a number of issues including consolidation, optimization, cost savings, workflow, globalization and outsourcing. March 7, 2018
Trading Henrik Thörnqvist, SVP Service Innovation and Implementation, discusses Itiviti Managed Trading and outlines the benefits of opting for a fully managed trading solution. Read more about Itiviti Managed. February 22, 2018