Fund managers expect higher trading levels next year and want to ready themselves with multi-asset capabilities, finds Nicholas Pratt.
The ability of trading systems to offer multi-asset class coverage is a key driver for product development by technology vendors.
Stretched IT budgets mean fund managers want a streamlined front-office dashboard, but with no compromise in performance.
They would also like it if the execution management system (EMS) could do things historically performed by their order management systems (OMS), too.
So systems vendors are trying to meet fund management requirements by exploiting the benefits of new technology trends, like cloud computing, in an effort to make these more powerful systems cost-effective and to lessen the infrastructural burden.
According to Mark Israel, vice president at consultant Sapient Global Markets, it is the software vendors that lead developments rather than brokers. Brokers have typically made their systems available in return for deal flow from clients.
A challenge for the vendors, though, are derivatives.
“Buy-side firms want to know what they should do with their execution and trading systems for exchange-traded derivatives,” says Israel.
For example, if they use an EMS to do a swap, it may then get broken down into ten trades with ten different brokers all with different collateral demands.
“We have been advising customers to do one of two things – have a strong multi-asset OMS that can link to multiple EMSs, or get an EMS that has multiple functionality. What we have found is that those managers that have opted for the latter approach have often built their own EMS and then connected to the other EMSs through that.”
And what of cloud-based versions of EMSs? While there are clear benefits in terms of addressing concerns over burdensome infrastructures, they are not without their own challenges, says Israel.
“The more EMSs you have, the harder they are to manage. The cloud helps when you have one EMS but not when you have multiple ones because you still have to manage the aggregation and the connectivity to the cloud providers.”
There is definitely room for developing cloud-based EMSs that are multi-asset in capability, says Israel, and cites Bloomberg, Fidessa and Portware as firms that have gone down that path.
There are also a number of asset class-specific systems out there that are still popular, especially in equities but, says Israel, they are likely to fade away in the future as managers look for more consolidation and multi-asset capability.
The biggest frustration for front-office staff has been the paralysing effect of impending regulations. “They are being told not to add any new systems until it is clear how the regulations will pan out. It doesn’t help that the deadline dates keep changing. We’ve been working on front-office reviews for a while now and firms want to start implementing.”
There is a belief that trading volumes will begin to grow again next year, says Israel, and firms want to be ready for it with an EMS that has multi-asset execution capability – though not necessarily to cover everything.
Additionally, they are looking to develop something in-house to deal with the processing complexity, particularly on the post-trade side.
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