There is a significant buzz about buy-side trading technology. A notable point is that nearly two-thirds of asset managers do not currently leverage an Execution Management System (EMS) for fixed income trading. But what about the limitations and challenges with a buy-side EMS? The buy-side has been long constrained by rigid, monolithic systems that are not only hard to innovate but also expensive to maintain. Originating primarily for equity order-driven markets, these systems are designed to integrate with sell-side workflows, like broker-dealers, exchanges, and venues, with little regard for to buy-side trading processes and workflows which is far more complex that simply sending an order for execution and waiting for the desired outcome. It adds uncertainty, risk and can impact the over performance of a strategy to name a few issues. The rapid pace of technological advancement means that the ‘legacy’ buy-side EMS is not just outdated; it is no longer fit for purpose. Buy-side firms using Order Management Systems (OMSs) to support trading processes also acknowledge they are not suitable for trading, and building around them not only adds unnecessary complexity but is also unsustainable, not to mention the associated costs. Yet some exhibit reluctance in moving towards more ‘modern’ EMS, as they often do not address challenges and fall short underpinned by flawed or lack of key design principles.

More alarming is the state of many legacy EMS’s. They desperately need modernisation to stay relevant in today’s demanding market. But the reality is that the upgrade process is not only expensive but also often results in a ‘sticking plaster’ approach or ‘cloud washing’. Legacy EMS providers often make cosmetic changes that create the illusion of modernity without truly embracing modern technology and design patterns. They migrate these systems to the cloud without capitalising on the cloud’s full potential or refactoring their EMS to be cloud native. It’s a temporary fix that fails to deliver the agility, scalability, and cost efficiencies that a true cloud-native solution can provide, all while locking their clients into costly multi-year contractual arrangements.

So, how should the buy-side approach this conundrum? First, it is about alignment and adopting a forward-looking approach with a true current state baseline compared to the target state. Aligning business, technology, and operational strategy is critical. Identifying the needs of the business, how technology can serve these needs, and how operational strategies can adapt to these needs should be the first step. Then, firms need to evaluate if their existing capability and technology stack can meet these needs or if they need to consider other options. This includes exploring the possibility of building a solution in-house. While this may seem like an attractive option, it’s fraught with challenges – not least the time, resources and cost required, which can often outstrip those of implementing a new solution, and then continued investment to innovate, enhance, and maintain.

Then there’s the option of buying a new fit for purpose modern EMS. Here, it is crucial to avoid the trap of simply adopting the same system as your peers. What works for one firm might not necessarily work for another. Each firm needs to conduct a comprehensive selection process, taking into account all the factors discussed earlier amongst others, i.e., your current and target footprint, what you trade now and in the future, how you trade now and in the future, where and whom you trade with now and in the future, pain points with existing systems, workflows and manual processes, trader capacity and efficiency. It’s not an easy task, but it’s necessary to find the right solution.

Finally, firms need to consider digital innovation and transformation as core to their strategy. Technology is no longer just an enabler; it is a business strategy imperative. For this, firms need to choose a platform that is truly designed and built with a modern approach and is capable of meeting the needs of today and the demands of tomorrow. It is also no longer just about features and functionalities, but the EMS’s potential to act as a catalyst for business growth, to adapt to changing market dynamics, and to offer a competitive edge.

With this in mind, the questions you should be asking when evaluating your current or target buy-side EMS needs are as follows:

Business-focused

1. Does the EMS support our strategic objectives? Can it help us enter new markets, offer new products, offer new capabilities, or attract new clients?
2. How does the EMS enable improved trader decision-making pre and at the point of trade? Does it provide the right information, analytics, and reporting capabilities to make data-driven decisions?
3. Can the EMS scale as our business grows? Will it be able to handle increased trading volume, complexity, increased product sophistication and strategies, and geographical expansion?
4. How will the EMS impact our clients and stakeholders? Will it improve customer service, trader user experience, or reporting capabilities?
5. Does the EMS reduce manual processes and improve efficiency? Can it automate workflows to save time, reduce operational risk including compliance and audit challenges?
6. What is the vendor’s vision and roadmap for the EMS? Is it aligned with industry trends and our future needs?
7. What is the total cost of ownership? Beyond the upfront cost, what are the expected ongoing costs including infrastructure, maintenance, upgrades, and staff training? How is cost impacted as we grow and based on what?
8. What is the EMS’s implementation timeline? Will the migration process cause any disruptions to our trading operations?
9. Does the EMS comply with your risk management requirements? Can it adapt to changing regulatory requirements and help us maintain compliance?
10. How does this EMS provide a competitive advantage? Will it offer unique capabilities or insights that differentiate us from other firms?

Technology-focused

1. How does the EMS enable digital innovation? Does it support modern technologies like AI, machine learning, cloud, and web-native capabilities?
2. Is the EMS designed with a future-proof architecture? Can it accommodate future technological advancements?
3. Does the EMS support an integrated and collaborative trading environment? Can it connect with other systems and platforms to create a unified trading ecosystem?
4. How does the EMS ensure data integrity and security? What measures are in place to protect against data breaches and cyber threats?
5. Does the EMS offer real-time access to data and analytics? Will it provide actionable insights and predictive analytics for better decision-making?
6. How does the system leverage cloud technology? Does it maximize the benefits of cloud computing including scalability, cost-efficiency, and remote access?
7. Is the EMS’s user interface intuitive and user-friendly? Will it enhance trader efficiency and reduce the learning curve?
8. Can the EMS handle big data and offer robust analytics? Can it process high volumes of data and transform it into actionable insights, and in real-time?
9. How is the EMS’s disaster recovery and business continuity plan? Will it ensure minimal downtime and protect data in case of a system failure?
10. Does the EMS vendor offer ongoing support and regular updates? What is the plan for continuous improvement, and how will it help in keeping the system updated with changing technological trends?

UI and user-focused

1. Configurable Workspace: How customisable is the workspace? Can the workspace be easily configured to a trader’s preference, from blotter layouts to data view setups? Is it possible to tailor or white label the UI to better fit the firm’s branding and unique operational needs?
2. Trading Strategies: Does the EMS support a wide variety of trading strategies and models? How easy is it to implement, evaluate and use these strategies on the platform?
3. Alerts and Notifications: How robust are the EMS’s alert systems? Can traders set up customisable alerts for market events, price movements, or changes in trading conditions?
4. Real-time Data and Analytical Tools: How efficient and reliable is the EMS’s real-time data processing and display? What kind of analytics and visualisation tools are available to traders? Can you integrate your own data and tools? Can these tools be used to gain insights and inform trading decisions effectively?
5. Workflow Automation: How easily can repetitive or complex tasks be automated? Does the EMS support rule-based automation, machine learning algorithms, or other tools to streamline workflows?
6. Data-driven or rule-based auto-execution: Does the EMS support data-driven or rule-based auto-execution? Can traders set up automated trading strategies using real-time pre-trade or historical data?
7. Multi-Asset coverage: Can the EMS handle multiple asset classes, including fixed income, foreign exchange, equities, OTC and listed derivatives, etc.? How is its performance across various asset classes? What is the trader experience?
8. Trade modelling and execution: Does the EMS offer a wide range of trade modelling and execution strategies? How easy is it to implement new and modify these strategies within the system?
9. OMS Integration: How effectively does the EMS integrate with an OMS? Can the EMS seamlessly communicate with the OMS to support real-time order modifications, cancellations, replacements, and track order status updates? What about pre/post-trade allocations processes?
10. Continuous Innovation: How committed is the EMS vendor to continuous innovation to meet evolving trader needs? Is there a clear product roadmap and development pipeline that aligns with the future of trading?

With the imperatives of digital innovation and transformation, these questions will ensure that the EMS is not just technically competent, but also a strategic asset to your firm.

Now, if the buy-side EMS does not meet 100% of the requirements, i.e., 80%, it is a good start, but the remaining 20% could be critical to your trading operation or future plans. Here are some additional considerations to assess whether and how the vendor can address these:

1. Roadmap Commitment: Does the vendor have a roadmap for their product that includes the missing features or improvements you need? If so, when are they scheduled for release? Is the roadmap realistic based on the vendor’s past track record of delivering new features?
2. Costs: What are the estimated costs for adding the missing features or making the required improvements? Are these costs considered an investment by the vendor or charged based to you? This includes development, testing, deployment, and support costs. Does the vendor provide clear and detailed cost estimates?
3. Resources: Does the vendor have sufficient resources to address the missing 20%? This includes technical expertise, infrastructure, and product development personnel.
4. Timeline: How long would it take for the vendor to implement the remaining requirements? Does the timeline align with your business needs and strategic plans?
5. Customisation: Is the vendor flexible enough to adapt the system according to your specific needs? How easy or complex would it be to customize the system?
6. Prioritisation: How does the vendor prioritise feature development and improvements? Are customer requests considered? How is their process in managing backlog?
7. Proof of Concept (PoC): Can the vendor provide a proof of concept or a prototype to demonstrate their ability to deliver the remaining requirements?
8. Vendor Relationship: What is the vendor’s approach to customer relationships? Are they responsive, initiative-taking, and open to feedback? Do they provide dedicated account management and support?
9. SLAs and Contracts: Are the terms in the Service Level Agreement (SLA) and contract favourable and clear? Are there penalties for missing deadlines or not delivering on promised features?
10. Risk Management: How does the vendor manage risks related to software development, implementation, and support? How do they ensure quality control?

Remember, while it is ideal to have a buy-side EMS that fulfils all your requirements, it is also important to prioritise. Some missing features might be ‘nice-to-haves’ rather than ‘must-haves,’ or there might be effective tactical workarounds available. Weigh the importance of the missing 20% against the costs, resources, and time it would take to have the EMS vendor implement them and make a decision that aligns with your business strategy and objectives.

THETA’s Apollo embodies all the considerations discussed in this article, offering a truly modern, cloud-native buy-side EMS designed with a deep understanding and experience of investment managment trading needs. Our commitment to scalability, adaptability, cost efficiency, and a user-focused approach puts us at the centre of the equation.

As experts in this field, THETA understands that not every buy-side firm is the same. Different firms have different strategies, different trading processes, and different growth plans. That is why THETA Apollo is not a one-size-fits-all solution. We work closely to understand you needs and aligns with your unique circumstances. We manage the technology hurdles and barriers, so you do not have to.

Do not let outdated your legacy buy-side EMS or short-term fixes stand in the way of your firm’s potential. Choose THETA Apollo, choose growth, choose the future.

That wraps up our deep dive into the modern buy-side EMS. We hope that this exploration of the key considerations and the potential questions to ask when choosing an EMS has been helpful. Remember, the right EMS can make a world of difference to your firm’s trading efficiency, agility, and future growth. So, choose wisely. Your firm’s future may depend on it.