TELLEFSEN AND COMPANY, L.L.C.

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TELLEFSEN AND COMPANY, L.L.C.



Execution Management Systems and
Order Management Systems



Evolution and Growth


December 2010


Proprietary and Confidential

Tellefsen and Company, L.L.C.

Proprietary and Confidential


Background





3


Evolution of OMS and EMS



4


EMS Functionality




6


Potential EMS Market Segment and Focus


7


Conclusions





8

Table of Contents

Page Number:

Tellefsen and Company, L.L.C.

Proprietary and Confidential


Order Management Systems (OMS) have been utilized by both
buy
-
side and sell
-
side firms since the early 1990s.


Execution Management Systems (EMS) came to market as traders
needed more specialized OMS technologies to support the
enormous amounts of data and market data traffic with negligible
latency.


As a result of market fragmentation following the introduction of
S.E.C. Regulation NMS (Reg. NMS), there are more trading
destination choices for traders to choose from (Internalization
engines, DMA, dark pools, exchanges, ECNs etc.)


A heavy reliance on EMS systems has evolved to support more
-
complex trading strategies, high
-
frequency trading (HFT), intra
-
day arbitrage strategies, as fast moving markets and razor
-
thin
spreads make it impossible to do this manually.

Background

Tellefsen and Company, L.L.C.

Proprietary and Confidential


OMS systems have been used by buy
-
side and sell
-
side firms to
document trades, re
-
balance portfolios, conduct pre
-
trade
compliance and post
-
trade allocations.


OMS systems continue to be the cornerstone of investment
management firms’ front office infrastructure.


OMS have been tightly integrated into the investment decision
making, trading, compliance and post
-
trade processes.


There have been workflow issues that require the use /migration
to EMS:


No straight
-
through
-
processing (STP) capabilities


No interfaces to post
-
trade systems and vendors


Messaging latency issues

Evolution of OMS and EMS


Tellefsen and Company, L.L.C.

Proprietary and Confidential


EMS solutions
-

differentiators:


Smart order routing


Depth of their infrastructure/connectivity to many trading destinations


Proximity hosting/co
-
location capabilities


Integrated market data and real
-
time pricing


Pre
-
trade transaction cost analysis


Custom algorithms


Commission management


Post
-
trade allocations


EMS systems continue to evolve their offerings and there is a
growing demand from buy
-
side firms.


EMS providers today are either broker
-
owned or independent
software vendors(ISVs).


In the last few years, there has been consolidation among EMS
providers and more is expected (i.e., market share).

Evolution of OMS and EMS (Cont’d) …


Tellefsen and Company, L.L.C.

Proprietary and Confidential


EMS systems typically support U.S. listed and NASDAQ equities
and U.S. equity options


Other asset class differentiators can include support for futures, fixed income
and foreign exchange products


Major features and functional differentiators can include:


Integrated depth of book functionality


Single order and program trading capabilities


Spread trading functionality


Smart order routing


Direct Market Access (DMA) connectivity/ low latency messaging


Intra
-
day position management


Order staging blotter


Access to multiple algorithms


Integrated best bid
-
best offer capabilities


Risk management functionality


Real time charting and news


Post
-
trade allocations


P&L calculators


Straight
-
through
-
processing


EMS Functionality

Tellefsen and Company, L.L.C.

Proprietary and Confidential


Traditional asset managers will use an OMS to take advantage of
broader trade support (portfolio staging, compliance and post
-
trade support).


Asset managers that trade infrequently are less concerned with
speed of execution and will be well
-
served by OMS systems.


Active asset managers that engage in basket trading, spread
trading and pairs trading and require cross asset class trading
capabilities will likely implement one or more EMS systems.


Mid
-
size or large asset managers will likely deploy one or more
EMS to placate traders with individual preferences, access to
broader span of broker liquidity.


Small hedge funds are more likely to use an EMS for the need for
a fast execution.


Large hedge funds will likely deploy multiple EMS offerings, as well
as an OMS.


Firm culture and EMS product offering nuances will influence EMS
selection / trading software strategies.

Potential OMS / EMS

Market Segment and Focus

Tellefsen and Company, L.L.C.

Proprietary and Confidential


EMS offerings continue to evolve and there is a growing demand
from the buy
-
side.


As of June 2009, ~20% of EMS client firms were traditional buy
-
side firms and ~80% were hedge funds, broker
-
dealers and
proprietary trading firms.


Global expansion by buy
-
side and sell
-
side firms into Latin America
and Asian markets will drag these solutions into those markets.


A more robust, well
-
integrated EMS
-
OMS hybrid will evolve.


Conclusions

Tellefsen and Company, L.L.C.

Proprietary and Confidential

Please contact:


John Rapa

President / CEO

Tellefsen and Company, L.L.C.

jjr@tellefsen.com

1
-
212 809 3800

For More Information