No Buy-Side OMS/EMS to ‘Rule Them All’—Yet

Specialized hedge funds are having a tough time providing better returns than exchange-traded funds (ETFs) after subtracting fees, says ITG managing director and former JonesTrading CEO Will Geyer, speaking during a discussion of order and execution management systems (OMSs and EMSs) at TradeTech West in San Francisco. Equity-only institutional managers are examining more multi-asset-class strategies, and this is trickling down to the trading desk. Traders are being asked to take a big picture view of the whole portfolio. The head of equity trading is taking over responsibility for foreign exchange (FX) and fixed income, and the management systems are following suit.

Along those lines, an audience member questioned why no OMS/EMS provider has fully enabled hedge funds to trade any asset class, anywhere, on a single platform. Bloomberg has made steps on the front end but isn't as equipped to handle complex allocation logic on the back end. By contrast, vendors like Eze Castle and Charles River are set up on the back end but don't have a trading legacy. The audience member says technology appears to be available but that he wonders if inertia or a legacy code base keeps companies from coming up with “one killer app that takes over the whole industry."

Geyer says he agrees, even though ITG markets an OMS and EMS. Using a Lord of the Rings analogy, he says, "There isn't one ring to rule them all."

"But getting the market data right, understanding transformation of data streams and FX into an ECN lit-market type of environment, which is happening quickly, is a big step," Geyer says. "You get the data right, and the ability to use that data, to incorporate that into your work stream so you can trade FX as a single asset class or you can trade it in a linked context with the underlying equity and pair those trades to manage implementation shortfall more effectively—that is coming."

He says the lack of development resources available since the 2008 downturn is one reason why it hasn't already happened. Such research has become a war of attrition.

Bloomberg has made steps on the front end but isn't as equipped to handle complex allocation logic on the back end. By contrast, vendors like Eze Castle and Charles River are set up on the back end but don't have a trading legacy.

"You see pockets of innovation pop up where you've got dedicated FX front ends," he says. "And they handle the complexities of trading spot and forward better than anybody else at this point. Their ability to grow into the whole continuum of the equity market is a lot tougher than an equity EMS once they get the market data right. We're real close, and I think others are too. Once it happens it'll go pretty quick."

He was talking only about FX, however. Fixed income will take longer.