“Traders need a real-time view of the market across multiple venues,” said Engdahl. “They also need to snapshot that information so afterwards that can show their decision was appropriate given market conditions at the time.”

It’s been a busy year for the companies that develop trade order management systems. Between algorithmic trading, regulatory initiatives and compliance issues, mutual funds and hedge funds have found that automating their trade flow has become a business requirement. Thanks in part to sales to the hedge fund industry, the trade order management business is growing in the US, and it’s growing in Europe and Asia as well.

The move from trading in large blocks through brokerages to algorithmic trading, that might divide a 100,000 share order into 1,000 orders of 100 shares each, has been a key factor in driving electronic management of orders.

In Rancho Santa Fe, CA, for example, Freeman Associates Investment Management has adopted Macgregor XIP’s order management system to optimize its equity trade execution for a $3 billion portfolio. The firm went live in six weeks with XIP plus several FIX broker connections, algorithmic trading tools, and integration to its Advent AXYS accounting system.

“We were very pleased with Macgregor's ability to integrate XIP with our proprietary trade optimizer and Advent's AXYS accounting system,” said Alex Green, head of trading at the firm. “XIP allows us to operate a state-of-the-art electronic trading desk with FIX connectivity to all of our traditional brokers as well as various alternative trading systems and algorithmic tools.” Freeman now uses this combination to trade more than one thousand orders a day.

Cazenove Capital Management, headquartered in London, has implemented the Charles River investment management system to manage £9.1 billion. Cazenove has 100 users around the world on the system, including 70 fund managers, seven traders, and three compliance managers.

“Since implementing Charles River IMS, we have realized workflow benefits across the board,” said Stewart Norwood, head of technology at Cazenove. “Operating on one enterprise-wide platform allows our fund managers, traders, and compliance staff to manage all securities and portfolios on one real-time solution, dramatically improving workflow efficiency and precision.”

The Charles River system facilitates what-if analysis, Norwood added. Its drag-and-drop functionality also allows users to quickly apply rules to any number of accounts to ensure adherence to fund, client, regulatory, and complex-wide guidelines.

The increased pace of trading is one of the big drivers of OMS sales.

“With algorithmic trading it is pretty much a necessity or you are flopping around without the ability to get to information,” explained David Quinlan, president at Eze Castle. “Hedge funds are diving into the compliance space because they have all the new regulatory pressures on them, but in the past they have been rapid adopters of the technology for electronic trading and direct market access.”

When hedge funds begin, they usually have very tight budgets and depend on their brokers for their trading systems, said Stephen Engdahl, director of product management at Charles River. As they grow, and especially when they want to use more than one prime broker, they realize they need their own systems for trading and decision support.

The line between institutions and hedge funds has blurred as more and more buy-side firms have started their own hedge funds, both to pursue higher returns and to keep their most productive traders within the firm.

Regulators in the US and abroad are also contributing to the upgrade and extension of order management systems. Buy-side firms are also looking with a wary eye at compliance requirements. Engdahl said that Reg NMS in the US and the MIFID regulations that are coming in Europe will change how the markets operate.

“The common component in the two is the transparency – the ability to see and hit the best quote regardless of the venues where that quote might be presented,” Engdahl said. That means the buy-side trader will see the quotes and make the decision on where to trade, rather than passing parameters to the broker who would make the decision.

“Traders need a real-time view of the market across multiple venues,” he added. “They also need to snapshot that information so afterwards that can show their decision was appropriate given market conditions at the time.”

Dave Csiki, managing director at INDATA, agrees.

“Regulations are a driving factor to have compliance in place. You need a system to track a trade, archive it, and time-stamp it, and that is what all these systems do,” he said.

INDATA’s strategy is to be the first adopter of new Microsoft technology, said Csiki. “We are a Microsoft Certified Solutions Partner, and we deploy Microsoft platforms quicker than our competitors. We rolled out SQL Server Reporting Services ahead of anyone, which gave our clients the ability to provide more customized reports, and we are already certified in SQL Server 2005.”

Eze Castle’s compliance engine has expanded to work globally with multiple asset classes, both pre- and post-trade.

“It’s a very flexible engine that allows users to design their rules on the fly; they don’t have to come to us and ask us to design a new rule.”

In the next year or two, said Eze Castle’s president, David Quinlan, order management systems will do more to support regulatory requirements. They will allow firms to deconstruct their trading to track commissions and link commissions paid to the value received from the firm in terms of records of research and execution. The theory is that if soft-dollars survive, they will probably require better documentation from the buy-side firms that continue to use them to pay for research.

“Money managers are starting to say that they have to understand how they are consuming research so they can determine how much it is worth to the firm,” said Quinlan. They also want to see how much they are paying to which brokers, something Eze Castle supports with its Commission Optimizer tool.

Eze Castle has also begun to offer mobility through EzeMobile, a secure portal that investment professionals can use from a hand-held device or any Web browser. They can use it to enter trades, view portfolio performance, retrieve real-time quotes, position, and cash information, and allocate an order to specific portfolios. The company has built EzeMobile on real-time .NET architecture.

In the face of new business requirements, OMS firms are also updating their technology. Charles River has launched Version 8 of its front and middle-office system, which features n-tier distributed processing and is three-quarters of the way to being a fully Microsoft C# .NET application. The company said it is moving through a phased evolution to offer the latest technologies including .NET, J2EE and Web services.

“Clients will appreciate the rapid application development that results from our use of this new technology,” said Robert Hathaway, vice president of engineering at the company. “Our development team can now deliver in days what previously might have taken weeks to develop.”

CRD has also used technology to integrate applications and data on the desktop, and it has entered alliances with Reuters and Lehman LiveScreen.

“Now a trader who is accustomed to the look and feel of a Reuters or Lehman screen can tie that to orders on their trading blotter. Traders just need to click on an order or list of orders on our system and we will population the Reuters or Lehman screen with the contents of that list, so they don’t need to cut and paste, and they don’t need to manage multiple separate applications,” Hathaway said.

Traders can send an order to an algorithm and specify the percentage of participation, how aggressive they want to be and the time frame they want the order to operate in. As the fills (which could number in the thousands with algorithmic trading) come back, the system keeps a running summary on one line.

www.cazenove.com
www.crd.com
www.ezecastle.com
www.faimllc.com
www.indataweb.com
www.acord.org