OMSs, EMSs Need to Embrace Data Visualization

Budget cuts that shrink trading desks often result in traders moving from single-asset to multi-asset trading. At the TradeTech conference in New York, one panel discussed how order management systems (OMSs) and execution management systems (EMSs) can help ease the transition into electronic trading of unfamiliar asset classes.

The first step is to make those tools capable of handling any asset class that the market might produce. That is not a given. Instinet's EMS offering does not handle fixed income, for example, and panelist Tom Whelan, the broker's head of US institutional sales, says it will not be doing so in the future just to tick a box.

"In EMSs, you're going to still find separation across very obviously different asset classes, such as fixed income and equity," Whelan says. "Where you have equity derivatives, for instance, an EMS can add a lot of value but it's a much more complex problem. You have to be much more focused on workflows. You have to provide tools that allow for somebody to manage both legs of the trade, to understand that this actually might look like three or four orders in my blotter, but when I go down to the complex book on an options exchange, it needs to be a package trade."

While smaller buy-side shops would appear to be the primary victims of the single-to-multiple asset class transition, Fidessa's director of buy-side market strategy, Robin Strong, says that is not so. Even pure equity shops tend to conduct some global trades, which necessitates a familiarity with foreign exchange (FX). It's the big brokers that have siloed trading desks, where options traders have never even met the fixed-income traders.

"As trading strategies become increasingly complicated, and I'm not talking something way off base—it could be something like buying foreign stock and hedging the FX, it could be buying a bond and hedging the credit risk, it could be buying a stock and writing an option against it—what you find is that an OMS can cope with all the various constituent elements of that trade," Strong said. "What you actually find is that when you send it to the sell side, the buy side is still at risk for one part of that order being executed, and the other part not, either at the same time or at the desired price. One of the challenges is for the sell side, which is actually under more cost pressures, to deliver solutions to that multi-asset, single trade problem."

The panel also spoke about incorporating tools into the OMS and EMS to improve transparency to order routing by brokers. Most incorporate FIX Tag 30, which reveals the venue where the last fill took place. When incorporated into a data visualization tool, it allows traders to detect potential bias or favoritism by their broker, and make inquiries about rebates or other conflicts of interest. Linedata's vice president of global trading technologies, David Hagen, says Tag 30, even real-time fill information, is no longer sufficient to placate the buy-side. His customers are increasingly asking to see the hops along the way—that is, where the broker tried and failed to execute before finally making the trade.

The natural agility of the EMS, a lightweight execution-only system, means it should be able to conduct on-the-fly analytics and course correct as necessary. Transparency feels rather impotent if the EMS is not able to adjust in real-time when a strategy is working or not working. Instinet's Whelan gives the example of a trader that is getting good execution in a particular dark pool, who wants to be able to tweak their algorithm so their smart order router doesn't even look in other pools.

There is often talk about combining the OMS and EMS into a single platform. The biggest benefit, says Hagen, would be the continuity of the data, especially for orders that take multiple days or weeks. Fidessa's Strong says that a combined OEMS would not be able to hold positions for portfolio modeling and pre-trade compliance the way that an OMS currently does. He says he does not believe they will become a single tool in our lifetimes. Whelan says Instinet has no plans to expand its Newport EMS into OMS terrain.

The Bottom Line
The panelists predict more user-friendly data visualization tools sitting on top of more automated flow, in the near future. The traditional gridded trade blotter, with its lines and lines of orders, particularly needs a facelift, says Strong. He also wants to see a function that allows buy-side traders to quickly identify orders that would benefit from high-touch and those that should be sent out via algos. Whelan says the buy side wants to be able to integrate more external data sources into their EMS blotter.

"I believe the future trade desk will look very much like an air traffic control tower on an aircraft carrier," says Hagen. "The order generation side of the house, they've got to come to the blotter, they've got to block appropriately, and they’ve got to make sure compliance is intact. Basically, they've got to land the planes without letting them crash into each other."