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August 14, 2007

OMS Vendors Eye the Buyside

The Execution Needs of the Buyside and Sellside are Beginning to Overlap

By Nina Mehta

In April, sellside order management system vendor Fidessa bought LatentZero, an aggressive purveyor of buyside systems for large asset managers, for $126 million. The acquisition surprised industry watchers. In recent years, London-based Fidessa has forged deep inroads into U.S. broker-dealer territory traditionally dominated by SunGard's Brass OMS, while LatentZero focused on the buyside.

So why would Fidessa enter a new market? The trading world and the relationship between the buyside and sellside are changing, but that doesn't mean Fidessa can combine the

two OMSs for customers and bank the savings in technology and infrastructure costs. OMSs for investment managers and brokers serve different gods and support a slew of different functionality for their users.

However, "the execution needs of the buyside and sellside now overlap," says Fidessa chief executive Mark Ames. And therein lies the reason for the Fidessa-LatentZero deal.

The Systems

Sellside OMSs are traditionally systems used by brokers for order management, order entry, routing executions to market centers, and tracking fills and positions. They also provide compliance capabilities and capture the desk's P&L. Sellside OMS providers need vast connectivity networks to enable brokers to route orders to and from customers and other brokers, and to ship orders to market centers and receive execution results. The OMSs must also take in market data from various sources and stream that data into desktop applications.

Buyside OMSs, on the other hand, typically provide portfolio management functions, order management for traders, some light risk management functionality, and compliance and back-office capabilities. OMSs for the buyside also typically have large networks and connectivity that allow orders to be sent from institutions to a vast array of brokers, and fills to come back and populate the OMS.

But what's now vitally important on both sides of the aisle-buyside and sellside-is super-fast access to market data and markets, and powerful, low-latency execution platforms. The same execution management systems are being used by both sellside and buyside firms to execute orders quickly, without the need to support large databases and other order management applications. Orders have traditionally been sent or "staged" to these EMSs, but EMS functionality is increasingly integrated into traditional OMSs.

Fidessa's purchase of LatentZero is different from other buyside OMS acquisitions. Investment Technology Group grabbing Macgregor, Bank of New York acquiring Eze Castle Software and similar deals were examples of brokers snatching the heftiest piece of real estate on buyside traders' desks. The brokers could then tailor their trading and execution-related offerings to the acquired platforms.

But Fidessa isn't a broker. It's a technology vendor that now owns a sellside OMS, a buyside OMS, an execution management system from each company (Fidessa has an EMS integrated into its OMS as well as a stand-alone EMS for buysiders), a routing network and various other applications. Eventually, Ames says, the execution platforms integrated into the Fidessa and LatentZero order management systems will be the same, although they may be used by and represented to the buyside and sellside differently.

OMS Expanded