Buyside Demands EMS Providers Step Up Offerings

When it comes to purchasing an execution management system, most buyside firms want broker-neutral EMSs that cover multiple asset classes and offer greater functionality.

Those were the conclusions of a recent research report from Celent, a financial consultant based in Boston. The upshot of the report is that the buyside is demanding an EMS that does more and for less money.

In "Execution Management Systems: Complexity on the Rise," Celent notes the EMS market has gotten more competitive for vendors and trading firms due to economics.

As a result of a volatile equity market environment, falling commissions and regulatory pressures, buyside firms need their EMSs to do much more. That’s because managers are cutting back on the number of EMSs they use to trade. Consequently, broker-neutrality has becomes more important. Firms have reduced the number of EMSs, and on average, have gotten down to two or three platforms, the report said. 

Bulge firms Goldman Sachs, Morgan Stanley and UBS offer EMS, and agency shops such as ITG, ConvergEx (RealTick), Instinet do as well. Vendors such as Bloomberg, Tethys, Neovest, FlexTrade, Portware, SunGard, Linedata and Fidessa also have skin in the game, according to the report.

Dan Royal, co-head of global trading at Denver-based Janus Capital Group said that when he was selecting an EMS at Janus, he wanted it to be broker neutral and to provide access to all brokers.

"A lot of institutions have either gone this broker neutral way or are going this way," he said of his peers. Royal has been using FlexTrade as his EMS since 2009.

"Broker-neutrality is becoming more important," wrote Anshuman Jaswal, author of the report and a senior analyst in Celent’s securities and investments group. "EMSs have become global and multi-asset in nature. The pressure to offer enhanced functionality from the buyside means there is more commoditization of EMSs."

Michael Thom, head trader at Vancouver-based Genus Capital Management, agreed. He told Traders Magazine he was looking for more functionality and use out of his EMS. His desk trades through ITG’s Triton and Bloomberg’s EMSX–and he’s not looking to add another to his desktop. 

"I view the EMS as an essential component of a buyside desk," Thom said. "But I think what we’re seeing is buyside traders looking to get more functionality and use out of individual systems, rather than looking to complicated workflows with many EMSs on a desk, each with unique and desirable attributes, but also with plenty of duplication of functionality."

Celent noted the shift to multi-asset and greater functionality comes as the buyside looks to become more efficient and simplify its workflow in the current low-commission environment. Due to client demand, EMSs have had to become much more global and access to not only equities, but also derivatives and foreign exchange.

Also, Celent’s Jaswal said buyside demand has led to brokers and third-party providers to add more applications in their EMSs.

 as opposed to building new trading platforms. And that is something the buyside wants – a handful or even just one EMS that provides more functionality rather than several EMSs cluttering up their desktops.

“The more that can be integrated into the EMS,  the better for us,” Royal said. “We’ve integrated components like holdings information, trade history,  program analysis, among other things into our EMS, allowing for more tools at the trader’s fingertips. Consolidation of functions in fewer tools is the direction the buyside is going. The more you can integrate into the EMS, the better. We integrate a lot into the EMS; you want as much info in one application as possible. Consolidation of functions in fewer tools is the direction the buyside is going."