Before I get into this week’s column, first, a question: Are you familiar with the open-source, Google-developed framework known as gRPC? I was speaking with someone recently who said they’re exploring the remote procedure call to speed up middleware interactions. Sadly, I know nothing about it, but if gRPC is something that you, too, are looking at, I’d love to hear your thoughts: anthony.malakian@infopro-digital.com

Also, today marks the start of our first (virtual) conference of the year, the WatersTechnology Innovation Exchange, which will run through Thursday. You can find the agenda here. If you have additional questions about how to “attend,” just shoot me an email.

Let’s get to it.

S-s-s-see ya, Sseoms

Bloomberg is sunsetting its equities Sell-Side Execution and Order Management Solutions (Sseoms, pronounced C-ahms) business by the end of April. Wei-Shen Wong and Joanna Wright spoke with a bunch of people about who is winning the business of those 150-or-so clients that will lose their OMS in a few weeks.

What’s so interesting about a story like this, is that it really shows how much of a weed order management systems truly are—they snake through an organization, and ripping them out is a “nightmare,” as one bank CTO told Shen and Jo.  

When you look at the dollars and sense (word play!) of these migration projects, it’s my understanding that tech execs tend to want nothing to do with them. The CTO said that you are not going to switch out an OMS to save 10% on expenses, so you make the switch because you absolutely have to—i.e., your business has changed, and you need an OMS that has wider/deeper coverage and capabilities, or, as was the case with Bloomberg, you don’t have a choice.  

“There are a million new things out there, but if you have something that’s working—maybe it’s not sexy and maybe it’s a bit boring, but it’s working—to move off of that and go through the whole hassle is usually not worth it,” they said.

After the story was published, I was talking with a different bank senior technologist, and I brought up these comments. They agreed with what was being said. I then asked, “Is another reason that CTOs don’t rip-and-replace their OMS because they worry about the headaches caused and that they’ll lose their jobs if it doesn’t work out? Is it a, ‘you don’t lose your job going with IBM, kind of thing?”

Senior technologist: “The business has to be the one to push for a change—tech can’t be the one clamoring to try this new system that you’ve been researching. If it goes bad, it can’t all land on you and it’s been my experience that people will go with the safest pick [meaning name value] when push comes to shove.”

Me: “Is it also because it’s rare for a CTO to stay 10 years in that role at the same company, so why lead such a disruptive project when you might not even be there to see the results?”

Senior technologist: “I think it’s more that traders don’t like change—even if the new system is better and comes in at cost, with an OMS there will always be problems that arise and everyone wants customization.”

It would seem to me that a CTO (or CIO, or head of tech, or whatever) is intentionally putting their head in a guillotine when changing out an OMS. And to that last point by the CTO, I don’t often speak with actual traders that aren’t already in my circle of contacts, so I don’t know what their true needs are. But it would seem like Sseoms was a fairly basic system, but by the fact that it connected to the larger Bloomberg universe, it had value. The technologists at the sell-side firms that were using Sseoms are likely in for a year-plus of traders asking why they DON’T have this, or how they NEED that. It doesn’t sound like an enviable situation.

And those requests and complaints will then flow on down to those vendors that are trying to win over those 150-ish Sseoms users. The other side of that, though, is the fact that these systems are sticky. What’s becoming clear to me is that firms absolutely do not want to endure an OMS migration—so it’s better to stay with the devil you know. While a vendor wants a bank to want to be a customer, it’s important to have income coming in, which can help the vendor to expand staff and capabilities. Additionally, a diverse set of users means that they can potentially think of unique tools for one client that can then be fed downstream to others.

Which is why I found it incredibly interesting that some of the vendors that Shen and Jo spoke to for the story said that they simply turned away customers because their price tag demands were too low or their customization needs were too much.

Rajiv Kedia, the founder of FlexTrade Systems, had this to say when it comes to overpromising and under-delivering: “Bad news travels fast, and we didn’t want to bite off more than we could chew. So we have been working with larger clients as compared to smaller clients,” and the story is littered with similar examples of vendors having to make tough decisions about how many customers they could responsibly bring on.

So it is that a sell-side-specific equities OMS was no longer a good fit for Bloomberg, which has created an incredible opportunity for the likes of FlexTrade, Itiviti, Quod Financial, Horizon Software, FIS, Fidessa, and several others. What will be more interesting, though, is to see how this space continues to evolve. As we’ve written about previously, Fidessa has experienced a lot of turnover and attrition since Ion Group acquired it, and Sseoms will be done by the end of April—those are some big names right there.

OMS providers can make big jumps in the space and add on clients that will likely be clients for a decade or longer. But what about those that either aren’t able to scoop up new users or who struggle to onboard former-Sseoms clients? Will they fold as a company or ditch their OMS offering like Blomberg? Will it lead to consolidation via M&A? Will it lead to partnerships via the application interoperability movement with the likes of OpenFin, Cosaic, and Glue42?

I have lots of questions. Hit me up if you want to discuss: anthony.malakian@infopro-digital.com.

A toothless regulation?

As mentioned before, the Innovation Exchange starts today, and all the panels this Monday are dedicated to issues pertaining to the field of environmental, social, and governance, aka ESG. It’s a subject that we’ve written a lot about. Looking at future coverage of ESG, much like with the regulation of artificial intelligence or of so-called Big Tech companies, we’re going to write more and more about how regulators around the globe are addressing ESG from a disclosure perspective.

Which brings us to a report published by three European watchdogs, known collectively as the European Supervisory Authorities. Last year, the ESAs released the draft for new legislation that would require asset managers in the EU to publicly disclose information related to the sustainability impacts of their products and of the companies in their portfolios so investors can make informed decisions about ESG investing. The buy-side bristled at the release. Well, the ESAs published their final report recently, and this version of the prosed regulation was more palatable for buy-siders. You could read about why here, but I’d like to hit on a couple of points from that article.

The Sustainable Finance Disclosure Regulation (SFDR) requires fund managers to publicly disclose the impact of their investments when ESG is factored into their decisions. The reason that buy-siders are happier with the final ruling is because the ESAs cut the number of mandatory indicators required from 32 down to 14. They will also need to select one additional indicator each for environmental and social factors from a list of options, which has increased with the number of mandatory indicators being altered to optional, thus making it easier for a particular fund to pick an appropriate factor for them.

Most important, though, is a provision that was added that allows fund managers to detail their best efforts in trying, but failing, to get data. Essentially, if you don’t have your homework when the teacher asks for it, as long as you have a good excuse from your mamma, you’re straight.

On top of that, the ESAs are pushing back the reporting deadline of Scope 3 emissions, which are the indirect greenhouse gas (GHG) emissions a company produces throughout its value chain.

While the regulatory technical standard enters into force on January 1, 2022, Scope 3 emissions will be incorporated into the 2023 reference period and so reported before the next reporting deadline, June 30, 2024. The thinking being that this will give the industry time to develop tools to include Scope 3 metrics in their reports. As the story notes, according to MSCI, only 18% of constituents of its MSCI ACWI IMI index—which includes large-, mid-, and small-cap companies in various developed and emerging market economies—reported Scope 3 emissions as of March 2020.

A delay in Scope 3 reporting and making a more modest list of factors that need to be disclosed makes sense at face value—it even seems responsible—but I’m cynical by nature.

I’m going to get a slight bit political for a minute, but hopefully not in an insufferable way. President Joe Biden has been vocal, saying that now is not the time for migrants to come to the US southern border seeking asylum, but his administration has also removed three Donald Trump-era rules that prohibited immigration into this country. Most crucially, he removed a rule that automatically expels unaccompanied minors arriving in the US. As a result, in December 2020, there were 74,018 apprehensions at the border, according to the US Customs and Border Protection agency; in February 2021, there were 100,441. And in December 2020, there were 4,993 unaccompanied minors apprehended; in February 2021, there were 9,457.

Now, I’m not here to talk politics—happy to do that over a pint at the White Horse Tavern on Bridge Street, which is now back open (hallelujah!)—but regardless of what you think of US immigration policy, a mixed message is being sent, with the words being harsh, but the actual policies being put in place are lax.

Similarly, it would seem to me that regulators are talking a big game when it comes to ESG disclosure but then are kicking the can down the road with actual requirements. Or, conversely, maybe it’s simply a case of regulators being responsible and listening to the concerns of buy-side firms. But if you are really going to be serious about ESG oversight, won’t 32 factors provide FAR more transparency than 14? And aren’t Scope 3 emissions the metric that make greenwashing FAR more difficult?

Then again…I’m not even fully sure I believe in the argument I’m making. Maybe I’m just being an asshole—which, you know, isn’t unheard of when it comes to me. I’m a “less regulation, not more” kinda guy. It’s just that when it comes to ESG, as I’ve expressed before, I feel that a lot of politicians, trading firms, regulators, and PR folks are preaching the right words, but not practicing—or truly caring about—what they preach.

I’m one of those rare conservatives who believe in climate change and truly believes that the jobs of the future will be created in large numbers in the environmental and sustainability realms—essentially, ESG is good for the economy in the long run. It pisses me off when the term “ESG” gets hijacked for political or commercial reasons.

So maybe I’m looking for a fight where there isn’t one, but to be sure, I’ll keep an eye on what effect SFDR has on the industry. If anything, the bright spot for SFDR is that, as usual, Europe is well ahead of the US on the ESG front. Maybe I should start concerning myself with regulators over here more.

The image at the top of the page is Edwin Austin Abbey’s “Fire! Fire!: A New Yorker’s Nightmare”, courtesy of the Yale University Art Gallery’s open-access program.