Do All Buy Side firms need both OMS and EMS?

Markets are now flooded with OMS and EMS offering making it tough for the buy side firms to pick the best one. Let’s have a quick glance on what are the factors which any buy side firm should consider before finalizing the product

What is OMS and EMS?
OMS which existed from 1980’s was one of the pet of all buy side firms, but later with evolution of technology and need to connect to multiple vendors , and perform the executions at an increased speed across market gave way to EMS invention. In modern times there exist and very thin line between the two and often the term OMS/EMS is referred as same due to the fact that many functions could be handled by both the system[Ref figure below]. And with the ongoing war by the product rivals, to capture lion’s share, a new ellipsis has been devised as OEMS , ruling out that there exist any difference between the two technologies.

Do All Buy Side firms need OMS and EMS?
To the point answer to this question is No.
The passive investors , which usually buy and hold the stock and are not worried of the market fluctuations [in short term] don’t necessarily need multiple brokers for execution and can rely on single broker, so the need of EMS for such firm nullifies. On the other hand hedge funds for sure need the EMS as they rely on fast and multiple executions. Also, the order placing mode differs each time with hedge fund, say a DMA order or a Proprietary trade which usually don’t need OMS but an EMS for sure.

EMS Offering
Basically there are two types of offering made.

  • Broker owned EMS – These are the system offered by broker to their clients mostly free, with no charges comes a restriction that they would only understand the sell side language, so if the customer wants to get the executions from other broker’s, a new bridge has to be setup.
  • Broker Neutral EMS – These are independent system being offered by broker neutral firm , and allow connection to multiple brokers but with additional cost .

Now let’s quickly look what all are the other factors which should be considered in a product before choosing an OMS/EMS?
Cost of buying a new system or migrating from an old[oms/EMS] to a newer one

  • The size of the firm does matter, as a small company with lower trading volumes doesn’t necessarily need an EMS due to the simple fact of budget constraint, on the other hand the large/middle level investment firms, who are quite aggressive in trading and have complex strategies may still need an EMS to cater their needs.
  • The multi asset platform availability, although many EMS have started building their system to support instrument other than equity, it still is a billion dollar question of whether your firm needs the support which an OMS can provide or a single/dual instrument trading is adequate
  • Are you looking for multi asset strategies , let me take an example an order which is coupled with a strategy ‘A’ but a combination of different asset class i.e. when I go SS equity, bond goes long as part of hedging technique .Again this stuff would only be a possibility with EMS.
  • With the advancement of automated and algorithmic trading, the Role of Analytics is well placed for a trade. Each passing day, pre trade analytics and post trade analytics for orders of previous day and work in progress analytics for in progress order is recorded and analyzed so that the algorithms could be tweaked and be provided by more apt and accurate executions. This is again as of now possible with EMS hence if firms are looking for such kind of analysis, EMS would be the right bet.

With the above factors in consideration, there would be still few firms who would need both OMS and EMS none of the system offers a complete solution. A solution to them would be an integrated platform OEMS, but as of now no one plans to offer an OEMS and road to fully equipped OEMS is bit long.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s