Broker EMS – up to the task?
Given this range of requirements, are broker execution management systems (EMS) an adequate solution? After all, compared to order management systems (OMS), which were never designed for trading, broker EMS’ represent a giant leap forward in functionality.
Unfortunately, in today’s market, the answer is no. First and foremost, users of broker-owned EMS’ are tied to the execution strategies and destinations supported by the broker in question. Other dealer strategies, crossing networks or agency broker destinations are off limits. For clients, the alternative is to simply open up another broker’s EMS or order entry portal, yet this “swivel chair” approach introduces a host of workflow inefficiencies and compounds desktop real-estate issues.
Second, broker systems simply cannot handle the increased order flow and market data that accompany periods of high volatility. As ASP systems, the shared technology infrastructure on which these platforms rely is simply inadequate in today’s fast markets.
Yet another problem facing users of broker EMS’ is a lack of flexibility. Beyond basic integration with OMS’, broker EMS’ are essentially closed systems. Users can do very little in the way of customisation, and are at the mercy of brokers for functional upgrades, asset coverage, access to various market destinations, etc.
Finally, the promise of single platform multi-asset trading via broker EMS’ has been left unfulfilled. While many brokers’ EMS’ offer some version of multi-asset trading, more often than not, these additional asset classes are not supported by a common technology infrastructure. As a result, while firms can trade multiple asset classes side by side on broker systems, they cannot be executed in a single environment that would support the adoption of more complex cross asset trading strategies.
In short, the very term EMS is something of a misnomer when it comes to broker trading systems. Traders cannot really manage their executions if they use closed, inflexible trading systems that provide access to only one broker’s suite of algorithms and services
The alternatives: build or buy?
Historically, the limitations of the broker EMS model lead to one of two alternatives: proprietary in-house build or external vendor solution. The former assumed a large, well-funded IT staff that has experience with trading systems development. Given the budget constraints that firms are now facing, this is no longer a safe assumption. Yet even before the current economic crisis, companies were reconsidering a shift away from proprietary technology development. Indeed, more and more companies are realising that the costs associated with developing and maintaining in-house solutions has become too great. Reinventing the wheel is a hard project plan to sell.
The result is that an increasing number of firms are turning to advanced thirdparty EMS’ that can address the full range of challenges posed. Hedge funds and traditional buy-side firms can now quickly and easily deploy a complete, broker neutral execution management solution that provides the kind of flexibility and ease of integration they demand. But the benefits of such a solution are not limited to the buy-side alone. Dealers who want to develop and make available to their clients full-fledged algorithmic trading services no longer have to create a host of proprietary trading systems and workflow applications. Rather, they can deploy a single solution that brings all the required elements of an automated trading system together in one package. It is a system that looks set to become increasingly viable and popular given the current and future trends in the electronic trading community.
Staying Ahead – Advanced, yet flexible, technology key to network success
