For the vast majority of buy-side investment firms, having a Trade Order Management System (OMS) in place is a mission-critical business requirement. An OMS is essential for compliance and regulatory purposes and gives firms the ability to automate trading activities so that they can scale efficiently, which is essential for accommodating future growth in terms of AUM.
Based on the importance of the OMS to the operating model of an investment manager, it is essential for firms to learn how best to optimize their own OMS usage, which is not always as easy and straightforward as it sounds. The following article highlights some essential aspects of the OMS, makes suggestions on how to think about them critically, and points out industry trends and best practices in those areas.
Use your OMS as a barometer for your Firm’s Overall Tech Strategy & Direction
Since an OMS is often the most critical software solution for an investment manager, valuable insights can be gained from understanding the underlying tech stack that a given provider uses. Most OMS systems started as Windows-based “fat” client solutions that do not work all that well in today’s cloud-native environment. In fact, several solutions still fit into the fat client category and have essentially become legacy systems in themselves. If your OMS vendor does not have production software available that is SaaS-based, web-based, cloud-based, leverages APIs to connect with other systems, and integrates data analytics and AI into the solution, then it is probably time to review providers as this is the essential tech stack for buy-side firms looking to future-proof their operating model. Additionally, if your current OMS provider is pushing an expensive upgrade to take advantage of these features, then it also may be time to have a fresh look at other systems.
Build vs. Buy – What approach is right and what is achievable with each?
There is an ongoing industry discussion as to whether it is best to build one’s OMS solution in-house or buy from a third-party vendor. While the idea of building an OMS solution from the ground up may seem appealing, there is much more operational risk in doing so. This operational risk does not pertain to OMS functionality per se but to the long-term costs of maintaining the solution itself. Technology changes rapidly, and it can be difficult for all but the largest of money management firms to keep up with plans and budgets for ongoing tech updates for in-house OMS solutions that will be required in the future.
Because of this, the conversation then shifts toward buying a vendor-based OMS solution. While buying an “off-the-shelf” OMS may seem like an easy choice for many firms, other considerations come into play. One of the central challenges with off-the-shelf solutions can be the difficult task of trying to customize them to work with a firm’s unique and individual business requirements. Often, customization capabilities are limited, or they may come at a great cost from the vendor. As such, firms should look to vendors that have significant customization capabilities and providers that have a good track record in doing so.
OMS vs. PMS or both?
Most OMS solutions started with a focus on managing trade orders and executions and were centered around the blotter aspects of the software. This gave rise to other software systems that focused on the automation surrounding the creation of orders themselves, i.e., stand-alone Portfolio Management Systems (PMS). In fact, some firms are still operating with separate OMS and PMS solutions from different vendors.
In today’s marketplace of providers, having separate OMS and PMS solutions may no longer be necessary as most OMS solutions now provide PMS capabilities. Using separate providers for OMS and PMS can create unnecessary complexity from an end-user standpoint, technical and administrative challenges for integrating the two solutions, and unnecessary costs.
Integrated OMS/EMS or separate providers?
When it comes to OMS vs. EMS, some vendors promote their integrated EMS capabilities, i.e., Order and Execution Management Systems (OEMS). While having a fully integrated OMS/EMS solution from the same provider may sound appealing, careful analysis should be done surrounding what it means to have a single solution not only to the firm itself but also to the ecosystem of brokers and sell-side solutions being utilized by the typical buy-side firm.
Integrated OEMS solutions from the same provider often come at great cost to the brokers who pay for the privilege of being “wired up” to receive electronic order flow. On that basis, it can be more economical for the brokers and sell-side providers of a given buy-side firm to use separate OMS and EMS providers, especially those with the lowest trading costs, which are far better for the money management firm’s own clients.
What can your OMS do for you from a reporting standpoint?
A good OMS should be considered as a valuable and consolidated source of data for the firm. Central to housing and storing information is the ability to leverage flexible and modern reporting, which is another consideration in ranking OMS providers.
Other Considerations
Buy-side firms should really think of their OMS provider as a trusted, long-term business partner. If providers have become legacy-based or too transactional and/or cost-prohibitive, it might be best to look at new solutions. When looking at OMS systems, special consideration should be given to vendors who are innovating while simultaneously providing a high level of service to clients. This means that many of the traditional arguments for favoring larger vendors with a “strength in numbers” type of argument do not necessarily apply in today’s marketplace since having many clients does not usually mean better service.
