Trade automation has moved beyond the OMS/EMS debate

Trade automation has moved beyond the OMS/EMS debate

  • Export:

By Lars Wiberg, VP Head of Product Strategy for Itiviti Group

In today’s environment, scalability, profitability and performance continue to be the fundamental drivers for traders. Technology is a key element and, now, how a trader decides which technology to use for order execution and order management is increasingly complex.

The traditional OMS/EMS debate has become irrelevant as the real underlying issue is not which system is best, but which one addresses workflow seamlessly without commingling different applications. New technology must be leveraged in the design phase to where the workflow is seen as a process of walking the order from A-Z.

Automation is key to free up time for traders to deal with an increasingly complex liquidity situation where humans really can add value. Freeing up time by automating the more straight forward orders to pursue the hard to find blocks and leveraging their relationships will be key for a successful sales trader.

Phases of Automation

Automation has been one of the main drivers from the very beginning as humans interacting with systems through a keyboard is error prone. Just the fact that there is a need for a “backspace” or “delete” key, says it all. A central theme of automation has been achieving Straight Through Processing (STP) which is crucial to the reduction of overall transaction cost and can be said to be “phase one” of automating workflow.

Phase one enables buy-side traders to select broker, strategy and pre-allocate, and send orders for execution through sponsored access. On the brokers’ side, the order is received electronically and automatically routed. The allocation instructions are applied and confirmed, and the order is sent to back office for clearing and settlement. This is a complete order cycle and typically how a low touch platform operates.

“Phase two” of automation includes what is considered high touch and requires analytical capabilities within the system or using an external tool integrated with the workflow. Specifically, traders want to automate the investment decision itself, as well as the strategy selection. There are a number of tools being developed on the buy-side that involve the investment decision. That part of the business is beyond the scope of a sell-side OMS and instead we want to focus what happens when the investment decisions have been made.

To suggest a trading strategy, what is needed is access to order and trade history, trade patterns, third party ownership data, performance indicators and ranking for all accessible algos, in-house as well as brokers. In theory, you can also store data on how a specific trader is performing when trading certain instruments and suggest “manual intervention” if the trader is consistently performing better than algos.

Convergence of Flow Types

Low touch has evolved quickly from the minority part of the flow offering clients access to the market via the existing infrastructure. Now low touch has become the major flow type, especially in equities. Flows have become more complex and direct access to strategies is now the norm. High touch is to some extent, limited to very large blocks or illiquid instruments that depend on broker´s network of clients.

Even that part of the business relies increasingly on data processing by cross-referencing orders against ownership data or trading/order history. Low touch being injected with more and more complex strategies means that performance monitoring requires more attention. The fragmentation of markets and lack of a golden source of static data increases the likelihood of rejections, which in turn creates a need for exception handling tools similar to those used in the high touch part of the business.

The convergence of high and low touch flows requires a consolidated system to be able to scale and seamlessly move orders from no interaction to manual processing by the trader and back again. The platform needs to be flexible enough to allow for order and trade management and for actions taken on a single order or multiple orders.

The Opportunity

With major parts of the industry’s offering stuck in legacy platforms, there is a window of opportunity to offer something else. A solution that is flow and asset class agnostic, truly global and based on a modern platform that scales well and offers the flexibility to sidetrack from the main architecture without it becoming an issue. Technology choice is crucial, and the underlying architecture must be able to cater to workflows that look completely different around the globe or across asset classes. It does not necessarily have to do everything a classic high touch system can do today, mainly because the workflows are changing.

We need to be able to predict or even suggest how traders should be set up in the future, but most importantly, offer the flexibility to adapt to different internal and external factors. The power of an app based, modular platform that encompasses today’s demanding environment, scalability, profitability and performance becomes evidently clear.


  • Export:

Related Articles