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Admin Aug, 13 2020 3 min read

Execution Management System vs. Order Management System: Selecting the System for Your Firm’s Needs

What is the difference between an order management system (OMS) and an execution management system (EMS)? It’s a surprisingly common question from industry veterans and newbies alike. Oftentimes, a COO or CTO might know that in order to achieve operational alpha they will need one of these systems. However, they aren’t always sure which solution is best suited to meet the needs of their firm. And do they need both?

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Let’s take a look at each system and its defining characteristics as well as who uses it and whether it is right for your firm.

What is an Order Management System?

At its core, an OMS is much like the central nervous system of your investment operations. It is here that trader orders begin their journey. The modern OMS offers modeling, P&L, order routing and some even offer execution and trade analytics. The OMS also streamlines daily investment activity by automating allocations, providing position checking and advanced compliance capabilities. OMSs, which are typically used by investment managers, are principally concerned with front- and middle-office functions.

Launched in the mid-to-late 1980s, OMSs allowed asset management firms to track orders negotiated over the phone and improve paper-ticket-based recordkeeping. As the Financial Information eXchange (FIX) protocol matured in the early-to-mid 1990s, OMSs added features for electronic order routing to brokers, an expansion of their capabilities that allowed them to securely automate and streamline the order routing process. Whereas at one time OMSs were equities focused, today, equities are table stakes. OMSs now support an ever-expanding array of asset classes.

What should you look for in an OMS? As the hub of your investment activity, your OMS must be configurable and flexible. If the trade origination process is clunky and inefficient, it wastes valuable time and puts you at a higher risk for manual errors. Any OMS worth its salt will be a multi-asset class system that allows you to trade across investment types and asses classes from idea generation through settlement. Additionally, it is much more efficient to select a platform that can easily scale up and grow with you. The total cost of ownership for expensive upgrades, custom enhancements or system replacements will far outpace any initial investment you would have made in a more flexible platform. So, look for an OMS that will fit your needs in the future, not just today. If you have more advanced trading needs, you may also want to look for an OMS that integrates tightly with an EMS.

What is an Execution Management System?

As its title suggests, EMSs are designed to execute trades, fast. They do this via centralized access to liquidity and execution venues and they give traders more in-depth market insights and offer more complex execution options than an OMS.

EMSs hit the scene in the late 1990s with the rise of day-trading. They were designed to help sell-side brokers and day-traders participate in a fast-evolving electronic marketplace. Buy-side interest in EMS tools gained traction when vendors began offering global, multi-asset class platforms.

Today, an EMS can give you access to in-depth, real-time market data and insights, support optimized trade-execution with advanced order types such as conditional orders, list trading, and multi-leg orders. An EMS can also generate fast and accurate execution reports and transactional cost analysis (TCA).

What should you look for in an EMS? As your firm’s direct connection to the market, you want your EMS to deliver fast and seamless access to global liquidity and provide you with the tools to achieve best execution. Look for a system that offers automated trading capabilities, including rules-based order routing and intelligent insights to act on changing market conditions. Also make sure that your EMS connects well with your OMS and can offer cohesive workflows between systems.

Trends in Investment Management: OMS/EMS Integration

As we mentioned previously, we sometimes hear that individuals are interested in an OMS or EMS but are uncertain of which solution is the right fit for them. Recent industry trends have set a major focus on the integration of the two systems. As the conversation around integration progresses, more investors can’t seem to figure out where one system starts and the next one ends. Integrated systems do everything an OMS does, plus everything today's increasingly sophisticated EMSs do. Being able to rely on one system offers firms a host of benefits across trading, compliance, technology, and operations departments.


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