The intersection between order management systems (OMSs) and execution management systems (EMSs) is a critical junction in the FX market. And while some elements are relatively simple, others are not.
First the easy bit: linking EMS and OMS platforms is a relatively straightforward process. Many EMSs have certifications from leading OMS vendors, and platforms can be integrated via a financial information exchange (Fix) API.
“There is a general perception that workflow automation requires lengthy and resource-intense integration projects,” says Sebastian Hofmann-Werther, head of Europe, the Middle East and Africa at 360T. “Our experience is that with the right support and expertise, integrating these platforms can be an easy and smooth process.”
But emulating EMS capabilities is where OMSs tend to struggle, since there are certain workflows in the former that are not fully enabled in the latter.
The FX market is extremely liquid, with up to 15,000 updates per second for prices. EMSs are built to handle multiple updates and streams from vendors and banks, and can handle that workload, but not all OMSs have similar capacity.
Some systems provide both OMS and EMS capabilities, but even within these functions responsibilities are segregated, as the OMS is purely one of several clients of the EMS, explains Cormac Walsh, head of product at ION Markets (FX).
OMS platforms lack the more advanced functionality required by many buy-side firms, such as sophisticated automation tools, enhanced workflow solutions, netting abilities and market data, says Hofmann-Werther.
“Generally, these platforms focus on providing either fixed-income or equities functionality or both, with much less concentration on FX because these systems often treat such transactions as merely the result of securities trades,” he says.
There is a fair amount of overlap specific to FX workflows. Many EMSs offer aggregation and blocking of trades, capabilities that would be found in an FX OMS, notes Michael Loggia, global head of workflow technology at Virtu.
“However, one obvious point of differentiation would be the availability and quality of pre- and post-trade transaction cost analysis, which is where I would expect an EMS to outshine the OMS,” he says. “On the other hand, the OMS likely has better allocation management tools for post-trade settlement and management of booking trades.”
Efficient multi-asset trading is essential for a competitive edge, but many financial institutions still rely on multiple E and OMSs across asset classes, leading to operational risks and inefficiencies
John Stead, smartTrade Technologies
John Stead, pre-sales director at smartTrade Technologies, accepts that traditional OMS solutions emphasized order handling while EMS solutions focused on connectivity and execution. But, he says, modern platforms have converged in terms of functionality.
“Efficient multi-asset trading is essential for a competitive edge, but many financial institutions still rely on multiple execution and order management systems across asset classes, leading to operational risks and inefficiencies,” he adds.
Systems may support multi-asset trading, but they are limited in the functionality they offer across each asset class. When it comes to FX, some platforms do not offer enhanced workflow solutions and will not support the trading of more specialist products such as options.
“We think it makes sense to use a multi-asset OMS in conjunction with a specialist EMS for FX,” says Hofmann-Werther. “Portfolio managers typically deploy a range of different investment strategies, which will often involve domestic and international purchases, across a range of different asset classes.
“Because their focus is on the investment strategy it makes sense to use a generalist, multi-asset OMS.”
In contrast, traders tend to be focused on a specific asset class because each has its own set of liquidity pools, market structures, execution methods and nuances in functionality. This user group might be better served by a specialist technology layer in the form of an EMS at the trading level to ensure they are able to achieve the optimal execution outcomes.
“For execution management systems, there is significant overlap between FX, crypto and, to an extent, equities, and many systems seek to rationalize across assets,” says Walsh. “OMS capabilities and requirements tend to be asset class-specific, and we see little overlap across asset class given the nuances of FX order management.”
Ideally, equity and fixed-income systems should integrate seamlessly with FX OMS to support automated workflows, says Vikas Srivastava, chief revenue officer at Integral.
“This has become especially critical with the pending go-live of T+1 in the US, which has highlighted the challenges for asset managers who need to purchase dollars to buy US equities and bonds on a T+1 settlement cycle,” he says.
In this instance, much tighter integration is required between equity and FX trading systems. As soon as the back office has confirmed the US cash equities trade, for example, this information needs to flow seamlessly to the FX trading systems with no errors.
