EMS Consolidation On The Desktop
Bud Daleiden, Global Head of Business Development, ConvergEx RealTick examines the changing nature of EMS services.
The year 2012 was a challenging one in the trading world. Trading volumes were down as economic concerns permeated the financial world. Financial firms were under enormous pressure as commission revenue contracted. Combined, these factors caused the sell-side to reduce their technology expenditures on marginally profitable relationships and led the buy-side to re-evaluate their own spending for technology and market access. That same pressure flowed upstream to the execution management system (EMS) vendors leaving them to compete fiercely for new desktop connections. Some struggled to survive or even perished. Other EMS options will likely disappear in 2013 as well. Well-positioned technology firms, however, have been able to thrive and grow market share in tough times by listening to customers and understanding their challenges, and by leading the industry with solutions that respond to and anticipate trends in the marketplace, including:
• Lowering the total cost of ownership
• Consolidating the desktop through multi-asset, multi-broker trading
• Providing powerful execution capabilities
Lowering the Total Cost of Ownership
Both the buy-side and sell-side were looking to trim costs in 2012. That trend is likely to continue into 2013, especially if trading volumes remain low. Technology vendors can help manage down buy-side costs in a number of ways. Delivering the EMS in a SaaS (Software as a Service) model helps traders to avoid more expensive and complex hardware models that require an on-site, server-based installation and IT staff to monitor and support multiple systems. Under the SaaS model, only the user interface is installed locally on the trader desktop while trading and market data services reside remotely in the cloud and are accessed on demand.
Additionally, market data alternatives should be offered that provide cost saving opportunities. An EMS should give the trader the ability to draw their exchange data from a number of sources while maintaining high data quality. Most EMS solutions give the customer the option to source live exchange market data from either their own ticker plants or directly from third party providers. This, however, can be expensive when adding exchange fees and data infrastructure surcharges. Some options, such as drawing data from a Bloomberg terminal residing on the same computer, help the customer avoid duplicate exchange fees altogether.
Finally, vendors need to provide an inexpensive and flexible API that offers users the ability to route orders programmatically using the EMS provider’s broker network, and allows them to access market data seamlessly using a single codebase. Incorporating all of these functions together in a single API reduces the client’s time to implementation, simplifies integration, and reduces support costs by minimising reliance on multiple technologies. Combining order routing and market data capabilities in a single API also provides customers with the flexibility to build custom solutions, ranging from simple order entry to very complex home-grown trading algorithms.
Consolidating the Desktop Through Multi-Asset, Multi-Broker Trading
A few years ago, the typical buy-side trader had multiple trading platforms on their desktop. Separate front ends were needed for trading with different brokers. Even more were required for trading across asset classes. Besides driving up end-user cost due to multiple computers, this segregated approach dictated complex desktop trading interactions which required the trader to toggle between disparate platforms. Task-switching between software applications in an effort to find the right broker or asset class was commonplace and slowed workflow processes considerably, while also creating a barrier to straight-through processing.
In the industry today, high-performing EMS solutions allow the trader to do most, if not all, of their trading on a single, highly configurable desktop application. These platforms provide a uniform workflow across trading desks easing the pressure to meet various regulatory, compliance, and risk requirements. Traders can place orders in any asset class with any number of brokers through a single, consolidated platform. Still, the trader must pick wisely. Many vendors claim to be multi-broker but have limited broker connectivity, while others purport to be multi-asset yet have a strong bias to single-asset trading.
Providing Powerful Execution Capabilities
As the search for alpha intensifies in a difficult trading environment, financial technology vendors can do many things to assist the trader. The most obvious of these is to provide access to a broad suite of broker algorithms. Traders often want access to the newest algorithms that give them the perception of an edge in trading and the most robust trading platforms offer users the ability to define their own algorithmic trading strategies within the standard interface or through a flexible, open architecture API.
Certain advanced EMS solutions also give the trader options to manage large lists of orders from a single blotter. Parts of the orders can then be parsed out to a variety of brokers following pre-defined distribution settings.
Even though 2013 will likely see extremely high competition in the electronic trading space, well-positioned providers will continue to grow at the expense of the weaker players. In order to succeed, solutions providers like RealTick need to be highly responsive to market trends and customer needs. This means offering cost-effective solutions while meeting the demand for global, cross-asset, broker neutral consolidated trading solutions.