What are your key requirements when selecting an OEMS?
For those on the buy-side thinking about changing their order and/or execution management system(s), I would encourage them to explore the modern landscape. It is possible your setup is optimised, but regardless, you’ll accrue benefits and increase your knowledge of the current offerings on the market.
As you begin, resources, complexities and goals should be top of mind. At T. Rowe Price, we’ve taken a more tailored approach for different workflows, but there could be a provider who meets most or all your requirements.
When thinking about requirements, you need to lead, looking at your activity, workflows, and gaps to capture and articulate those. That said, integration with existing systems is paramount. Bells and whistles mean nothing without straight-through-processing.
Speaking from personal experience, we went through a large-scale project to onboard a new EMS three years ago. The project included different phases, including requirement gathering, execution of RFIs, analyses of capabilities and costs, and proofs-of-concept. The requirements we considered included netting, trading protocols (RFQs, ESPs, algos, high-touch), LP availability, automated trading, and FX product availability, among many others. The extensive effort paid off, with the platform now handling over 80% of our ticket volume while hosting our automated trading system.
How efficient is the communication between liquidity providers and platforms and how can this be improved to better manage FX positions and hedging?
Efficiency in communication between liquidity providers and platforms varies greatly, with some examples of true partnership and other times, not so much. This dynamic can be a challenge given the diverse set of objectives across sell-side, vendor, and buy-side. To make improvements and reduce costs for all, everyone could do more to seek increased standardisation in trading and messaging protocols to increase trading efficiency across the industry, including ourselves. Under every custom adaptor lies a hidden opportunity cost whereby the completed work is not portable, requiring duplicate efforts elsewhere. FIX protocols are great, generally speaking, but there are still a number of workflows for which there does not seem to be a standardised solution.
On top of this, I think the buy-side (again, ourselves included) can do a better job of making sure that our needs are being communicated effectively to both sell-side and vendor. Like any relationship, the onus is on the one whose needs are not being met to rectify the situation. Looking ahead, we strive to help bridge the gap between sell-side and vendor to help come up with scalable solutions for all.
How can pre-trade data and capabilities be best integrated into platforms to improve execution performance?
Along with the push for interconnected, interoperable workflows, I genuinely view this as the next frontier for trading on the buy-side. While significant progress has been made in transaction cost analysis (TCA) over the last five years, we have still yet to apply data and analytics in the most valuable way. Being able to truly augment trader expertise and decision-making with real-time recommendations is the goal, and for this effort to be successful, the recommendations need to be integrated within trader workflows as close as possible to the point of execution.
While at T. Rowe Price we are opting to build our own recommendation systems, with a RFQ panel selector going live in Q1 and an algo recommender system currently under development, solutions are emerging in the industry for those looking to “buy” rather than “build” these capabilities, which I highly encourage people to explore.
To reiterate the point, however, integration with workflows is paramount, and this is going to be a challenge that must be overcome to truly unlock these capabilities. Looking ahead, we are pushing for more open architectures, including scalable frameworks for plugging in APIs and interoperability, in the hopes of improving “go-to-market” efficiencies on these types of initiatives.
How comprehensive is the current offering of vendors providing holistic market views pre-trade? How do you use these on the desk?
On the whole, our market data vendors do a good job of providing our traders with price discovery and a sense for market conditions before and while engaging particular trades. While there are some areas of weakness, like illiquid NDF markets, these are largely market-structure-driven. For example, levels on screens in markets like PEN, CLP, and COP may not give the best indication of what is truly attainable in the market, but with significantly less liquidity overall, our traders know to take these data points with a grain of salt.
Having said that, our usage of these platforms is largely disconnected from our OEMS workflows, presenting a sizable opportunity for efficiency gains in the future. Our hope is that interoperability vendors provide a solution here, bridging the gap across systems and providing a more seamless experience across workflows. Further, there is significant potential to increase the consumption of market data within predictive, pre-trade analytics across much of the buy-side. Both of these enhancements would no doubt lead to better trading experiences for not only our traders, but also, our end investors and clients.