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Downturn hits buy-side trading system vendors

Posted: 14 January 2009

A research study conducted by TABB Group has shown the extent to which the economic downturn has affected and will continue to affect, buy-side trading system vendors. It is predicted that global buy-side spending on equity-focused OMSs and EMSs will decline 13% and 11% CAGR (compound annual growth rate) respectively from 2007 to 2009.

The study, “OMS or EMS? The Buy-Side Perspective on Selection and Convergence,” also highlights particularly how buy-side firms in the U.S., the UK and across Europe are looking to rationalise their use of trading technology. “The days when growing asset bases resulted in an abundance of commissions – and investment banks could provide trading applications for free – are coming to an end. In 2009, consolidation is the trend.” says Kevin McPartland, senior analyst at TABB Group and study author.

Nearly half of all buy-side firms interviewed are considering changing their trading system, swapping out an OMS or an EMS despite the complexities involved in doing so. The study also shows that as the number of EMSs on the buy-side trader’s desktop continues to shrink – down 50% by 2010 – some firms are opting to forgo their EMS altogether for newly-delivered trading functionality in their OMS.

Conversely, other buy-side firms are moving from their complex and expensive OMS installation to a single EMS that delivers functionality once found only in an OMS. In both cases, McPartland explains, the resulting process is more streamlined and less costly. System rationalization and consolidation, however, brings with it the technical complexities involved in swapping out one system for the other. System consolidation is the primary driver behind changing their EMS while enhanced performance is the main driver for an OMS change.

TABB Group conducted in-depth interviews throughout 2008 with traders from 178 buy-side firms. Two-thirds of the participants were based in the U.S. with the remainder split between Continental Europe and the UK. Traditional asset managers accounted for nearly 70% of those interviewed with hedge funds making up the balance.

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