| Traditional asset managers
over the last two years have rapidly adopted execution
management systems (EMS), which historically have been
associated with hedge funds and other firms seeking
the most sophisticated trading technologies, according
to a report by research firm Aite Group.
The finding "suggests that advancing technology
and the maturation of various electronic markets and
algorithmic trading are drawing the traditionally more
conservative manager into strategies that several years
ago might be considered higher risk," said Aite,
whose study examines recent market trends in the sector
and profiles 15 EMS suppliers, both independent vendors
and brokers and their subsidiaries.
Clients of independent EMS--excluding Bloomberg, whose
numbers were not available--will by year-end climb at
least 48 percent from 2006, according to Aite. Hedge
funds account for 37 percent of users, followed by proprietary
traders at 22 percent and brokers at 18 percent. Traditional
asset managers, "negligible in 2006," now
make up 12 percent.
Stockholm-based Orc Software, included in the report,
has seen a significant increase in the number of long-only
asset managers utilizing its EMS, which Jesper Alfredsson,
VP of trading solutions, attributed in part to recent
market volatility. "Historically, most asset managers
have used long-short-type strategies and they've been
primarily in the cash markets," said Alfredsson.
"However, because of all the volatility in the
market, we are now seeing ... asset managers realize
that using high-frequency, low-latency trading strategies
that don't necessarily look at long-term trends is a
way to take advantage."
New York-based Portware's "strongest growth has
come from the traditional asset management community,"
said Harrell Smith, head of product strategy for the
company, adding that in the last 18 months, five of
the top 20 global asset management firms have adopted
its system.
According to Smith, the increase was due partly to
Portware's multibroker connectivity. "Clients want
access to numerous different brokers and their suites
of algorithms," he said. "Portware is completely
broker-neutral and our clients connect to over 30 different
brokers, all of which can be accessed from a single
Portware installation."
Matt Samelson, senior analyst at Boston-based Aite
and author of the report, said that "EMS vendors
have placed significant focus on the breadth of asset
classes handled by their technology as well as the geographies
supported by their systems."
While Samelson noted in the report that the trend of
firms expanding the range of asset types they trade
is not new, its importance for the EMS industry has
grown substantially. Vendors whose platforms do not
currently provide functionality across equities, options,
futures and foreign exchange "are working to round
out their offerings and expect to have that functionality
incorporated by year-end 2008," says the report.
Few vendors, however, currently offer fixed-income capabilities.
EMS vendors are offering coverage of an ever-broader
selection of countries, according to the report, citing
integration of global markets and advances in automation
and infrastructure in areas such as Japan, Hong Kong,
Korea and Australia. "Geography is becoming a more
widely acceptable means of portfolio diversification
as entry into, and exit from, world capital markets
becomes safer, easier and less costly," says the
study.
While Europe and North America have the largest number
of EMS customers and are still experiencing the steepest
growth rate, Asia is showing steady growth, noted the
report, due to increased electronic trading there.
Orc, for one, is finding more EMS customers in the
region. "Firms in Japan and Korea seem especially
poised to take advantage of algorithmic trading and
we've seen the adoption of our Orc Advanced EMS at an
accelerating rate," said Greg Chambers, Orc's president
of Asia-Pacific. "We are also well positioned to
enter emerging markets, including India and China, as
the market conditions and regulatory environments in
those countries develop."
Michael Chin, president of New York-based TradingScreen,
which this month opened an office in Singapore, said,
"We have clients all over the globe and we are
covering all asset classes electronically. We receive
a lot of feedback on our EMS and continuously work to
enhance it for users, particularly those in emerging
regions."
According to Samelson, risk management solutions have
also become more important to providers of execution
management systems. In response to customer demand,
"particular vendors have made strategic decisions
to provide embedded, real-time, proprietary solutions
in their offerings while others have chosen to enhance
the ability to integrate third-party risk solutions."
(c) 2008 Securities Industry News
and SourceMedia, Inc. All rights reserved. SourceMedia
is an Investcorp company. Use, duplication, or sale
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