As the asset management industry has changed, the technology used to support it has evolved, too. Today’s trading desk environment depends on two main solutions: execution management systems (EMS) and order management systems (OMS). Both play a crucial role in managing the lifecycle of a trade, but how do they differ? In this guide, learn about execution management systems vs. order management systems.
What Is Trade Order Management?
Trade order management describes both a process and a technology. It encompasses the entire lifecycle of buy and sell orders in the financial securities market. The process directs the capabilities of the system, providing everything from creating the order to execution. Streamlined workflows are integral to the ecosystem, enabling the management of tasks such as compliance, real-time data insights, and connections to trading venues.
Understanding Order Management Systems
So, what is an order management system?
An OMS, also referred to as a trade order management system (TOMS), is fundamental in trading operations. These systems focus on front and middle-office functions. Its design enables the creation of trades efficiently. It also checks for compliance rules and sends trades to brokers and other liquidity sources. Additionally, an OMS interacts with industry systems for settlement upon the full execution of trades.
An OMS uses the Financial Information eXchange (FIX) protocol. The primary objective of the platform is to enable investment firms to manage client portfolio holdings, orders, executions, and compliance activities related to trading in a centralized and efficient manner. They support both buy-side and sell-side.
Those using a TOMS are typically portfolio or investment managers, traders, trade operations specialists, and compliance officers. When these systems first launched, they were initially simply for tracking orders negotiated over phone calls and replacing paper ticket record-keeping.
Its second generation added more features, including routing of electronic orders to brokers and secure automation functionality to streamline the entire order and execution management process.
Order management system software is now the hub for managing daily investment activities. It automates trade creation and allocation, enabling position keeping, while also advancing compliance capabilities.
This software has other features that embed automation into investment management, including:
- Portfolio modeling
- P&L exposure visibility
- Order routing
- Decision support
- Trade execution analytics
- Broker Commission Reports
Flexible and Customizable
For an OMS to deliver all this value to its users, it requires a flexible and customizable system architecture. Configuring it to meet the needs of firms is critical to its ability to drive efficiency. It should also be a system that can scale as requirements evolve. These attributes ensure that the trade order management system is agile enough to grow with the organization.
What Assets Can an OMS Trade or Monitor?
There are many financial products that users can manage with an OMS. Those include:
- Equities
- Fixed-income products
- Currencies
- Bank Loans & private credit
- Cash
- Derivatives
What Are the Benefits of an OMS?
Those using an OMS appreciate that it streamlines the order lifecycle, improving operational efficiency and trading performance. The real-time component of monitoring all markets and executing orders across multiple exchanges and trading venues means users can work in sync with what’s happening in real time.
An OMS also supports regulatory compliance with pre- and post-trade checks of proposed trades, before execution and after trading has been completed. With these capabilities, compliance officers can track a trade’s lifecycle and review the system’s audit trail to ensure their firm stays in compliance with internal guidelines and regulatory rules. Since an OMS covers the entire trading process, all this available data can improve communication among stakeholders.
The software can also provide access to all orders in the system, open and complete. With this information, portfolio managers operate in real-time with their intended future trading actions.
What Is an Execution Management System (EMS)?
What Is an Execution Management System The other half of the trading desk is an EMS. Execution management system vendors originally developed these platforms to assist sell-side brokers in aggregating trades and tracking executions sent back to the buy-side.
Since then, they’ve become part of the buy-side, as well, managing trade executions more efficiently, as required. An EMS is front-office focused and used exclusively by traders on the trading desk. Their primary purpose is to provide fast, reliable, and accurate access to various trading venues and platforms that handle the trade execution process.
An EMS can be a standalone solution or integrated with a trade order management system. Investment firms make their own decisions based on the configuration that works best for their needs.
EMS Key Features
An EMS provides the following features:
- Availability for real-time market data and insights
- Execution reporting
- Transactional cost analysis (TCA)
- Automated program trading
- Rules-based order routing
- Advanced order type options (e.g., conditional orders, list trading, multi-leg orders)
What Assets Can an EMS Manage?
An EMS should offer multi-asset and multi-asset market access for trading:
- Equities
- Fixed-income products
- Foreign exchange
- Other asset classes that can be traded on a fully electronic basis
What Are the Benefits of an EMS?
Those adopting an EMS can realize many benefits. Firms typically see improvements in two areas:
- Efficiency: For high-volume trading desks with numerous brokers and liquidity sources, an EMS can provide efficient access to trading venues. With this consolidated in one system, traders can execute trades quickly and efficiently.
- Improved execution: In-depth market analysis is readily available in an EMS, which supports market trend analysis, monitors trade performance, and evaluates the impact of trades and transaction costs.
Key Differences: Order Management System vs. Execution Management System
The main difference between an OMS vs. EMS is who uses them and for what purpose. As indicated, they both have distinct roles within an investment firm. An OMS centers around order creation, portfolio management, and compliance. Trade execution and optimizing those activities are the exclusive purposes of an EMS.
Portfolio managers and middle-office staff are the primary users of an OMS. Traders use the EMS.
Another difference is the “perspective” provided to end users. An OMS creates a high-level view of a portfolio, with order generation occurring from this. It acts on a user’s instruction to reduce a percentage of an asset where there is potential exposure. An EMS then handles the trade execution process.
Benefits of Integrating OMS and EMS
Many investment firms have recognized that integrating their OMS and EMS offers a more effective solution for trade order management. When connected, firms can simplify and consolidate all the activities involved with trade order management.
When unified, firms can enjoy a streamlined trading process from start to finish. An OMS feeds orders into the EMS to trade while the EMS updates the OMS with the execution data. The result is accurate order tracking and reporting.
A combined OMS/EMS also usually means a more innovative and modern system, eliminating the challenges of legacy systems. Most recently, practical AI tools are now part of the combined platform, supporting portfolio management, rebalancing, modeling, compliance, and reporting. AI also eliminates manual work, and algorithms analyze big data for insights.
While feature-rich, an OMS/EMS still delivers the specific capabilities of each user type, including traders, portfolio managers, and compliance officers. Each can quickly see an overview of relevant data for all buy-side trading.
Another key benefit is that a complete trade order management system is a SaaS product, so it’s secure, agile, and scalable. Open APIs also enable the ability to connect these systems to other platforms.
Order Management System vs. Execution Management System: Choosing the Right Trading System
In a review of OMS vs. EMS, both are essential in the trading environment. An OMS is order-oriented, and an EMS is execution-focused. They have unique features but complement one another to provide the software tools required for modern firms. These order and execution management systems are critical to a firm’s ability to be fast, accurate, insightful, and compliant.
As firms move toward the future of trading, they must make some major decisions about software. The best option is often the combined system. With this approach, organizations can optimize their processes while also mitigating operational risk.
Combining these two platforms is now possible with INDATA’s Trade Order Management System. Learn more about the product and request a demo today.
FAQs – Frequently Asked Questions
What is an Order Management System (OMS)?
An OMS is software that enables front- and middle-office functions. It provides investment firms with the capabilities needed to manage portfolio holdings, orders, executions, and compliance tasks related to trading. It does so in a centralized manner for both buy-side and sell-side activities.
What is an Execution Management System (EMS)?
An EMS is a platform that automates and manages the process of completing financial trades. It includes everything from placement to routing to execution to completion. It’s associated with the front office and delivers reliable and accurate access to trading venues and platforms.
How are OMS and EMS different?
The primary difference between an OMS and an EMS is that the former focuses on order creation, managing portfolios, and compliance. The latter’s use case is for trade execution. An OMS handles pre-trade and post-trade sequences, while an EMS is all about execution.
Can OMS and EMS be used together?
Yes, and most firms do use them together. An OMS generates and manages the order, pushing the information to the EMS, which then executes. The EMS then delivers real-time execution data back to the OMS for order tracking and reporting. The INDATA solution combines OMS and EMS into one system.
What are the key benefits of using an OMS?
An OMS takes a highly complex workflow and streamlines it, which boosts efficiency and trading performance. Since the data is real-time, users are always working in sync. It’s also instrumental in ensuring compliance with regulations.
