Execution management systems come of age
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Foreign Exchange

Execution management systems come of age

Use of execution management systems continues to increase as markets become more fragmented.

In early 2014, an Aite Group survey found that around three quarters of buy-side respondents were using execution management systems to source liquidity and manage risk across platforms.

According to Jamie Benincasa, FlexTrade's senior vice-president of global sales, this trend has gathered pace during the past 18 months and is likely to continue as larger buy-side firms choose to upgrade systems to achieve even greater efficiencies in their FX trading workflow. 

“Recently, we have been tasked with streamlining pre-trade allocation processing, aggregating liquidity sources to provide transparent dealing and providing post-trade integration with in-house systems,” he says. “These efforts have freed up institutional traders to focus on best execution by accessing streaming liquidity from competing dealers and the result has been tighter prices and more streaming liquidity available.”


Harpal Sandhu,
Development Corp

Various developments have encouraged growth in the use of execution management system platforms. Asset managers have implemented advanced and multi-asset class order management systems (OMS), while markets have become substantially more electronic and moved from trading vanilla instruments only to offering almost everything the asset manager wishes to trade, sharply increasing the level of complexity required in trading screens.  Liquidity sources that previously favoured voice trades have also shifted towards e-trading.

As a result, the e-trading capabilities of OMS providers have not been able to meet the needs of all users and these systems have become much more open to connecting to other platforms.

“In this environment, it has been possible for very advanced, asset-class specific execution management system platforms to thrive, as they can focus on meeting every last detail of the workflow and trading needs of their target market,” says Simon Wilson-Taylor, head of EBS Institutional FX.

This can be done without compromising the integrity of the OMS, which now acts more as a message hub in many asset management firms, he says, adding: “Our platform is a prime example, combining pre-trade support with at-trade access to the client’s choice of liquidity sources and post-trade advanced transaction cost analysis.”

With concerns over fragmentation and access to liquidity spanning asset classes, many customers are looking for an efficient, reliable, conflict-free solution to source liquidity and manage risk, says Dana Caggiano, senior analyst at TradingScreen, who describes the execution management system as the most efficient mechanism for tracking and managing risk.

“In addition to providing access, our system has integrated tools to manage and monitor best execution at various stages – pre-trade decision support, in-trade tracking and post-trade reporting – and enables users to make informed decisions about venue routing, strategy and broker selection,” says Caggiano.

Harpal Sandhu, CEO of Integral Development Corp, says his company has learned from its buy-side customers that execution management system functionality is central to achieving best execution.

“Institutional investors particularly appreciate the combination of execution management systems-as-a-service with operational efficiency for their complex netting and fund allocation needs,” he explains. “Features such as smart order routing and configurable algorithmic execution strategies allow asset managers to achieve best execution for their clients.”


There are several ways in which a good execution management system will contribute to best execution, observes EBS's Wilson-Taylor.

“Embedded transaction cost analysis measures every step of the process, providing the data to demonstrate that the asset managers’ best execution policy has been followed," he says. 

"Pre-trade tools will assist in determining the best time to trade and the best method to use, as well as seeking opportunities to net or block trades. Liquidity management tools assist in granular management of OTC price feeds and better informed conversations with liquidity providers, while market impact analysis offers a more effective guide to how quickly large trades can be executed without information leakage.”

Celent senior analyst Anshuman Jaswal says the degree of sophistication of the system depends on the requirement and capability of the user, with the larger asset managers and hedge funds using more advanced systems – and updating them regularly – while medium and small buy-side firms tend to use solutions provided by their brokers.

“As sell-side solutions and simpler execution management systems can be relatively cheap to install and use, it is in the interest of buy-side firms to use such technology,” he concludes.

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