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OMS/EMS Vendor Consolidation Raises Questions Among the Buy Side

Traders Magazine Online News, February 5, 2019

John D'Antona Jr.

While 2018 was a banner year for M&A bankers specializing in the OMS/EMS space, the wave of consolidation has left some concerned, according to several industry executives. After three notable independent OEMS vendors got snapped up by much larger industry players in the second half of the year – State Street acquired Charles River Development, SS&C’s picked up EZE Software and Virtu is in the process of acquiring ITG – many of their buy-side clients have been left with a range of questions and concerns around conflicts of interest, data privacy and the future of these software platforms. 

“Many of the fund managers I speak with are watching how the coming months play out very carefully,” said Guy Cirillo, an industry consultant who for many years served as Credit Suisse AES’ head of business development, a role that saw him manage all the firm’s vendor relationships. “That’s not to say there’s distrust on anyone’s part, but given the tremendous amount of critical data that flows through these systems, caution is the watchword.”

It is this concern that has Virtu working to head off any issues of perceived conflicts already. In November, CEO Doug Cifu noted that the trading technology and execution services provider will build a committee of global clients to oversee the firm and ensure that data is protected.

But some remain skeptical. One buy-side trading executive, who asked to remain nameless, expressed reservations about Triton becoming a part of Virtu. “There are all kinds of real and perceived conflicts on the Street these days. But integrating a formerly independent OEMS platform into one of the industry’s largest market makers does raise legitimate questions. Ultimately, I don’t think a firm as established as Virtu is short sighted enough to do anything nefarious, but that reality is certainly in the back of my mind.”

Been There, Done That

Concerns over neutrality and data privacy when an OEMS provider gets acquired by a trading firm is nothing new. As industry veterans will recall from 2006, when ITG acquired Macgregor, there were immediate concerns about whether the then-leading OMS would remain a broker-neutral platform as ITG integrated its own trading algorithms and TCA software into it.

At the time, ITG officials said they were aware of these concerns and would create a corporate structure that would keep the Macgregor OMS business separate from the trading business, recalls Cirillo.

“The concerns today, and response from the acquirers, are not too dissimilar to the situation a decade ago with ITG’s acquisition of Macgregor. In my opinion they handled the integration, transition and potential conflicts around Macgregor very well,” he said.

Support and Development Questions

Another source of concern for clients of these acquired OEMSs is the lack of commitment to continued platform development and client support, say rival executives.

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