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April 15, 2009

Report Sees Tough OMS Market

By James Ramage

Order management system functionality is expanding just as buyside users' budgets for them are retrenching. So to succeed in a difficult 2009, OMS vendors must look beyond equities and outside the U.S. for growth opportunities, according to a recent Aite Group report.

Despite a predicted reduction in overall technology spending at asset management firms and hedge funds this year, buyside OMS purchases are expected to remain basically flat-they will rise about 1 percent, the report said.

The first half of 2009 looks to be a tough one, in terms of new sales," the report said. "However, opportunities in both Europe and Asia should continue to drive the growth of the overall OMS market, especially during the second half of 2009."

Buyside OMS expenditure is expected to rise to $408 million this year, from about $405 million last year, the report said. Spending should increase to $415 million in 2010, and to $421 million in 2011.

Competition is coming from execution management system vendors, as EMSs now have some of the same functionality as the OMSs. EMSs now offer tools for basic asset allocation and compliance.

Still, Aite Group's Sang Lee, the report's author, said that OMS vendors could have taken steps recently to help them withstand the market downturn and their struggling client base.

"Overall, vendors that have spent the last few years enhancing their core architecture, diversifying asset class coverage and committing to building a global presence should find themselves in dominant competitive positions as the market finds its footing," he wrote.

In addition, OMS vendors have made algorithmic trading functionality a priority. This means vendors must keep abreast of new broker algos and updates, as well as extend their broker relationships, the report said.

And within that space, OMS vendors have been modifying their systems to handle the growing number of algos that target non-equity asset classes.

"Most vendors now support algorithms for global equities," Lee wrote, "but an increasing number of vendors have moved into support algorithms for equity options, futures and FX."

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