Institutional traders are opening their collective wallets wider and spending more on their order and execution management systems to keep pace with the changes in equity market structure.
Indeed, Greenwich Associates reported that institutional investors worldwide now spend between $1.5 billion and $2 billion per year on OMS and EMS for trading desks. Greenwich Research also said annual buyside spending has increased 10 percent over the past two years. In its latest report, “Market Structure Changes Drive New Demands in OMS/EMS Technology,” the consultancy examined OMS and EMS vendor platforms to see what is driving the buyside’s increased spending.
Increased spending, the report said, was due to the buyside’s need for increased compliance as a result of new regulations and client-imposed analytics requirements.
As part of Greenwich’s study, it surveyed 424 institutions about their use of OMS and EMS systems and other trading technology. It had in-depth conversations with the leading five systems providers: Bloomberg, Charles River Development, Advent Software, InfoReach and Citadel Technology.
Among buyside institutions, Bloomberg received the most mentions as both an EMS and OMS provider. For OMS providers, Charles River Development followed Bloomberg and rounding out the top five were ITG, Advent and Eze Castle Software Group. In the EMS area, ITG followed Bloomberg and the other top contenders were Charles River Development, Advent Software and FlexTrade.
Institutional investors globally spend around 44 percent of their technology budgets on OMS and EMS. In the U.S., investors spend slightly more, 48 percent of their average technology budget, of $3.8 million on the technology. In comparison, Continental Europe spends 35 percent of its $2.4 million technology budget on OMS and EMS systems.
The report notes that, given the significant investments required to keep systems up-to-date with rapidly changing client needs, niche technology providers in both OMS and EMS could have “a hard time competing with the industry’s top players in the year’s ahead.”
The U.S. and U.K. markets are served by the largest number of OMS and EMS vendors, Greenwich said while Continental Europe was served by fewer. The Middle East, South America and Asia (excluding Japan) are underserved and ripe for OMS and EMS providers to grow market share.
Greenwich also said the trend toward an integrated or unified order and execution management system, or OEMS, was a certainty. That’s because both the buyside and sellside look to trim costs amid lower equity trading volumes. However, this Holy Grail of one system for all has not yet arrived. The need for a one-size-fits-all system, vendors said, is being driven strongly by buysiders in Asia and Continental Europe, where there are fewer technology vendors when compared to the U.S.
“Even for the largest OMS and EMS providers, however, achieving true integration will be a complex undertaking requiring significant experimentation and investments in R&D,” the report said.
