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April 1, 2011

Cover Story: Converge & Diverge

EMS Suppliers Vie to Distinguish Themselves as Their Products Become Increasingly Similar

By Peter Chapman

All roads lead to Rome. That's the way it was in the ancient world, and that's the way it is in the modern world of execution management systems. Today, roughly 10 years after the trading platforms went mainstream, the great majority of suppliers are all rapidly headed down the same path. They all offer trading in multiple regions and asset classes through broker algorithms, typically with a package of analytics thrown in to measure performance.


The trend has been under way for some time, but is nearing its natural conclusion. And as all of the systems--on paper, at least-begin to look the same, their owners are pondering the future. Will the industry, estimated at $1.5 billion in annual revenues, consolidate? Or will suppliers find a way to maintain their relevance in a commodity business?

Sang Lee, a managing partner at the consultancy Aite Group, is working on a study of EMS platforms. "I went through 30 demos for this report," Lee said. "After a while, these systems look very similar."

That's understandable, according to one EMS vendor. "You have to have all of these things just to be in the game," said Bryce Byers, president and chief executive at Neovest, an EMS vendor based in Salt Lake City. "And the cost of entry is high because it's expensive to cover all the markets."

Some suppliers have decided the costs are too high. In 2009, Citigroup abandoned its LavaX platform. It decided it did not want to make the investment necessary to keep up with the Joneses. LavaX was primarily a domestic stock trading application. The big broker now recommends TradingScreen's TradeSmart to its buyside clients.


See Chart: EMS Suppliers


Also in 2009, the combined Bank of America Merrill Lynch dumped Merrill's X-Trade platform in favor of the system sold by Bank of America's vendor subsidiary InstaQuote. At the time, BAML executives told Traders Magazine the underlying InstaQuote technology and infrastructure was better and more scalable.

And last year, Barclays Capital, which inherited the RealTick EMS when it purchased Lehman Brothers' U.S. operation, jettisoned that system, as well. Barclays declared it had no interest in operating a software company. It sold RealTick to ConvergEx.

"The world of the EMS is simplifying quite drastically and quickly," said Philippe Buhannic, co-founder, chairman and chief executive of TradingScreen. "In the future, there will be very few providers."

TradingScreen is one of the largest EMS providers, with about 1,700 customers. Bloomberg's EMSX, Investment Trading Group's Triton platform and RealTick also boast large numbers of users.

Despite Buhannic's predictions, those others still in the game vow to remain there-and there is good reason to believe them. For the brokers, their EMS platforms are tightly intertwined with their trading services, especially algorithms. For some of the vendors, their EMSs are just one component of a broader package of technology.