TowerGroup Take-Aways

• The buy-side order management system (OMS) market is being impacted by new investment management principles and strategies like portable alpha and long/short (130/30), as well as upheaval with respect to institutional trade execution.
• The three core areas of OMS functionality — portfolio management, order blotter, and compliance — are all being impacted by growing volumes, new products being traded, and increasing globalization of the asset management market.
• Beyond core functionality, clients consider a number of criteria important in assessing an OMS: external connectivity, post-trade support, cost competitiveness, responsiveness to customers, and timely product development.
• Common concerns among clients about OMS providers include inadequate onboarding and ongoing support, lateness in bringing new functionality to market, and lack of a long-term vision of the asset management business.
• OMS vendors contend that they operate in a very tough business rife with price erosion, intense competitiveness, frequent technology obsolescence, and a very demanding client base.
• The OMS market is very price competitive, with clients driving hard bargains with OMS vendors, which often results in cutbacks in product development or customer support.

Report Coverage

A lot has changed in the buy-side order management system (OMS) market since the first applications were introduced in the 1990s. This TowerGroup Research Note considers what has been happening in the last few years, and what the changes portend for the future. Vendors have dramatically improved core functionality of the OMS, extended the application to new areas like post-trade support, introduced connectivity to execution management systems (EMSs), and widely incorporated broker algorithms. Merger and acquisition (M&A) activity in the OMS market has been intense since 2005, and new economic models have emerged (e.g., broker-owned OMS, in which brokers buy OMS systems so as to provide order management to buy-side clients as part of a comprehensive brokerage offering).

This TowerGroup Research Note begins with an analysis of the broader issues in the asset management business before describing the major changes in the three traditional core functions of the OMS: portfolio management, order blotter, and compliance. The Note also explains why (beyond obvious preferences related to core functionality) asset managers are replacing their OMS applications today. The Note also discusses client perceptions and frustrations with OMS providers and the providers' response.