[Extracted from Algotradingindia , Excellent Resourceful blog from Lokesh Madan on Algotrading insigts. If you are a algo trader then his blog is a must read]
Order management systems (OMSs) have become an integral part of a trader’s workflow and have become increasingly more entrenched on trading desks.
Historically, order management systems have focused on automating internal communications, allowing traders to electronically collect orders and instructions from portfolio managers, aggregate orders into blocks, manage executions, collect fills and allocate to several different accounts. Today, however, OMSs are enhancing their functionality by providing advanced trading tools including analytics and reporting, access to multiple brokers and execution venues, algorithmic routing capabilities and advanced execution functionality available through direct market access (DMA) platforms and execution management systems (EMSs).
The following article provides information on the many components of an order management system, trends in the industry and information to consider when purchasing an OMS.
COMPONENTS OF AN ORDER MANAGEMENT SYSTEM
With order management systems being the central integration of front, middle and back office functions, it is important to understand the components of an OMS and how their functionality can add value to your business model.
The primary functions of an order management system are portfolio management, trade analysis, reporting, trade execution, trade management, compliance tracking and FIX /API connectivity. Each component plays an important role.
Typically, portfolio managers use a portfolio modeling module to construct, analyze, rebalance and run “what if” scenarios. This simulation process shows the risk and liquidity effects of potential changes in the portfolio. Once a trading decision is made, the portfolio manager will authorize the trade and send it electronically to a trader.
The compliance module determines if trades meet compliance policies. Some additional benefits provided by a compliance module include post-execution monitoring, audit trails and compliance administration. With tough industry regulation, compliance tops the operational priority lists of many firms.
The trading module provides real-time, fully customizable trade blotters that communicate with portfolio managers, compliance, back office, brokers and a variety of execution venues.
The FIX/API module provides for real-time trade and indication of interest communication between the trader, brokers and execution venues. Financial Information eXchange (FIX) or native API is the industry standard protocol for real-time exchange of transactions and information related to the securities markets.
The last step in the order management process includes the confirmation and allocation of executed trades. Allocations are communicated to brokers via the phone, fax,Native API or a direct FIX link.
ORDER ROUTING NETWORKS
Order routing networks are used to relay trading information between the order management system, brokers and execution venues. Order routing networks can be categorized into one of the following types:
Point-to-Point – Orders are sent over a network directly to each broker or execution venue.
Orders sent directly to brokers without passing through a third-party vendor
Use of all FIX or API capabilities
Requires more IT involvement on the user’s side
Manager must monitor FIX/API connections with each broker
Manager must test with each broker
Service Bureau (Protocol Conversion) – Orders are sent to the order routing network vendor who converts the order to the proper message format for each broker or execution venue.
Simple and quick to use
Vendor handles all FIX/API testing
Vendor monitors the communication line
Vendor converts all messages for broker compatibility
FIX/API capabilities limited by the vendor
System error can stop all electronic trading
Service bureau “sees” your trading data
Some of the most common order routing network vendors include: Bloomberg, Reuters, ITG Net, NYFIX, SunGard, TNS, Thomson ATR, Linedata and Charles River. ( Not In India).
Technological advances have made trading more efficient than ever. As order management systems continue to enhance their functionality, additional trading tools have become available.
Crossing Networks/Dark Pools ( Not valid for Indian Trading ).
While crossing networks have been around for many years, it wasn’t until recently that dark pools of liquidity have proliferated. It is estimated that there are nearly 40 dark pools available today including proprietary dark pools as well as those available to both the buy and sell-side.
Dark pools are electronic trading venues that do not publicly display quotes. Orders are matched anonymously, often at the midpoint price or through negotiation with a counter party, and are typically done with minimal market impact.
With the development of the numerous dark pools of liquidity, fragmentation has become a concern. To address this, many providers are linking directly with each other in addition to offering access to their liquidity through algorithms.
Because of their ability to impact the natural price discovery process of traditional markets, darks pools have drawn attention from regulators. A section of Regulation National Market System (Reg NMS) focuses specifically on dark pools and states that any trading venue accumulating more than 5% of US equity volume must provide open quotes to the broad market.
Algorithmic trading has become increasingly popular over the past several years. Algorithms enable traders to automate the execution of their orders by aligning them with specific trading strategies. Cost, market changes, fragmentation, declining liquidity, decimalization and the advancement of electronic trading technologies have all been drivers in the development of algorithmic trading.
Algorithms have evolved from time and volume based strategies to more adaptive strategies. Recent developments in algorithmic trading strategies include dark pool algorithms and portfolio algorithms that take into account an entire portfolio of securities.
Execution Management Systems
An execution management system (EMS) is a trading application that has the ability to manage orders across multiple trading destinations, in a wide range of asset classes. EMSs can be considered a next generation direct market access (DMA) platform.
Many EMSs offer advanced trading features including direct market access, algorithms and trading capabilities in global equities, options, futures and foreign exchange. EMSs are typically stronger in trading capabilities but lighter in many of the OMS functions. The EMS is more agile and can adapt more quickly than the OMS in today’s rapidly changing capital markets, and some firms may find their abilities to be more valuable and practical for their needs.
EMS vs. OMS
One of the biggest trends is the concept of a globally integrated OMS and EMS. Surging market data volume is creating a demand for trading platforms that not only can handle increased data volume, but will also eliminate the hassles of dealing with two separate trade management systems. While OMSs are integral for portfolio modeling, compliance and accounting, EMSs are great for active electronic trading across multiple asset classes and algorithmic strategies. With the buy-side’s need for both sets of functionality, order management systems have been developing EMS functionality while execution management systems have been adding OMS functionality, thus causing a blurring of the line between the two systems.
Several recent EMS/OMS integrations include Linedata LongView and REDI, EzeCastle and BNY Convergex, LatentZero and Fidessa EMS, and ITG and Macgregor.
Another trend on NSE India that is capturing the time and attention of OMS providers is the movement to reduce data latency. Latency is the time it takes for data to move electronically from one place to another. Data is passed through countless network switches, market participants, servers and applications.
There are several methods to reduce transaction times. Enhancing technological infrastructure, buying data caching solutions, installing hardware accelerators and co-locating servers are among the most popular ways to reduce latency. Co-locating consists of a broker housing their algorithms and servers in the same room, or as closely as possible, to the actual servers of the exchanges and electronic markets. This process can eliminate even the most imminent time lags in the fastest area wide networks.
SEBI need various new Regulations by which Indian markets can compete with International Exchanges. Need Various Improvements on Algo Trading Regulation Front. So main focus must be on Algo Trading & Investor protection.
Industry regulation such as the SEC’s Regulation National Market System (Reg NMS) has helped solidify the eminent role of electronic trading in the US equities market. The same can be said about Europe’s Markets in Financial Instruments Directive (MiFID).
Best execution is not just desired by traders and money manages, it is now a regulatory factor that must be accounted for by both buy- and sell-side firms. The new regulation is heavily focused on electronic markets and investor protection, which has in turn had a great effect on the amount of electronic trading data produced. Compliance and regulatory factors have and will continue to influence the production of electronic trading systems and the overall electronic trading market.
CONSIDERATIONS WHEN PURCHASING AN OMS
Purchasing an OMS, or replacing an OMS, is a time-consuming effort that requires the involvement of numerous people and departments. Therefore, it is important to consider several different factors when beginning the OMS search process.
Order management systems are either purchased or leased. Some vendors only offer one option while other vendors offer both. Purchasing a system usually entails a higher initial outlay of costs with monthly maintenance fees costing between 20-25% of the system price. Leased systems incur higher monthly premiums but come with a lower initial cost. Installation and integration costs are not usually included in the price of the system. Be sure to inquire about these costs.
Implementation of an OMS often takes 3-6 months to complete depending on the complexity of the installation and the vendor’s number of current or pending implementations. A good way to find out what the installation process involves is to contact other clients about their implementation experience.
Some order management systems are complex and require the investment manager to have a sophisticated IT department. Be sure to balance the sophistication of your IT staff with the sophistication required by the order management system. For a fee, many of these vendors are willing to take on many of the IT requirements. Depending on the size and needs of your firm, some smaller vendors may not be able to provide the appropriate level of support required. Be sure to check client references on their ability to get support after the sale.
Third-Party Interfaces and Data Sharing
Firms need to think about how they will interact with the markets. Will they use crossing networks, algorithms, ECNs, EMSs, or simply use FIX /APIto connect to traditional brokers?
For complete automation, a system must be integrated with a portfolio management system, execution venues, trust accounting system, risk management, and other systems that need trade data. Many of these connections have been built and are available for your use, but some connections must be developed. If a system does not currently have an interface, the vendor will offer to build one for a fee. Be aware that being a beta for a custom interface often involves a lot of time on the manager’s part.
Transaction Cost Analysis Integration
Transaction cost analysis (TCA) tools analyze a firm’s executions and compare them to specific benchmarks. The tools look at the executions by broker, by trader, and by other metrics to measure how the buy-side trader is performing. These analytics try to analyze market impact, compare trade execution to the portfolio manager’s instructions, and examine the execution in conjunction with various portfolio or firm benchmarks.
The end result of TCA should be a scorecard that helps traders, portfolio managers, and the firm better understand their strategies and the impact the strategies have on performance.
OmnesysIndia ( Most actively used OMS in India But most of clients are not satisfied )
Omnesys is a leading provider of software for Securities markets worldwide. Omnesys products range from multi-asset, multi venue trading systems, market data and connectivity solutions to buy-side and sell-side firms, consumer oriented trading terminals and websites. The main product suite Omnesys NEST is available as a firm or broker hosted model, and in a Software As a Service (SaS) Model. Omnesys NEST is a platform of choice for leading institutions, exchanges and brokers in India.
OMNESYS NEST™ is used by more than 200 of the top institutions in India as well as various exchanges which provide OMNESYS NEST™ as a front office service to their customers. The software as a service model is available to all the members of the exchanges and covers the entire trading community.
Omnesys NEST is a fully integrated eco-system for securities including Order Management System, comprehensive pre-trade risk management systems, supports various types of front ends, automated trading systems, and Algos. Omnesys NEST also provides FIX execution capabilities and APIs for both buy and sell side firms. With exceptional throughput and scalability capabilities, NEST has captured significant market share in the Indian markets within a short period of time. A substantial percentage of the volumes on the markets happen through Omnesys NEST automated trading systems and algos.
OMNESYS is a privately held company based in Bangalore. DOTEX(A wholly owned subsidiary of NSE) and Intel Capital have minority stakes in the company. The company has Offices in Bangalore, Mangalore, Kolkata, Delhi and Mumbai and recently acquired by Thomson Reuters by Sep 2013.
Any customer intending to use a Trading platform needs to plan on scalability and access to multiple asset classes and multiple venues. Omnesys NEST is presently connected to all the exchanges and asset classes in India. Connectivity to other Asian exchanges such as DGCX and SGX are underway. Connectivity to other global exchanges is being continuously developed.
Symphony Fintech ( http://www.symphonyfintech.com/technology.html)
Symphony Fintech Solutions Pvt Ltd, a provider of Automated Trading Systems, had connectivity with 39 International Exchanges across the Americas, EMEA & APAC, including CME, LME, DGCX and SGX. A Symphony Presto terminal can now be used by Traders to deal in all asset classes traded in the domestic exchanges (NSE, BSE, MCX) and International exchanges seamlessly.
Symphony’s Presto platform can now be used to develop strategies based on fundamental/technical indicators with market-data from multiple exchanges across various asset classes. One can back-test the strategies after they are developed and paper-trade the strategies and then, deploy the strategies ‘live’. The Symphony Presto platform uses industry standard FIX protocol to interface with all exchanges.
Components of Presto ATS
- Admin Console: To monitor strategies. To monitor,control Risk Management ,Authentication etc.
- Dashboard: To monitor,control strategies, Manual Order Entry etc.
- Strategy Agent (Multiple instance can be run): Each instance can run multiple strategies.
- Reports includes a BIRT-based Reporting engine and custom-reports
- RMS Compliance Module: A web-service that can plug in to your algos to seamlessly comply with SEBI/NSE/BSE/MCX algo-approval requirements
- Order Management System (OMS): OMS includes an Order Routing System for accepting orders from external providers and routes them to multiple exchanges, persistence layer backed by a database and authentication on.
Presto Eco System
- Broadcast Data Feeders (BDF):
These components receive live market data from NSE/MCX/BSE, decrypt and convert data to a uniform format and rebroadcast the data for internal consumption within the organization.
- TBT Data Feeders
Feeders receive live Tick-By-Tick market data from NSE, converts and rebroadcasts the data for internal consumption. Has built-in features to recover from transient network-failures.
- Recorded Data Feeders (RDF)
This consists of a ‘recorder’ to record live broadcast data from MCX/NSE/BSE and a ‘player’ to play back the recorded data under different modes in an uniform format
- Historical Data Feeders (HDF)
HDF reads the historical data (available from NSE/MCX/BSE/DotEx etc.) and statistically generates market-data via extrapolation in an uniform format
- Simulated Data Feeders (SDF)
SDF can be used to test simulated market conditions, such as, market-open, illiquid market-depth, tight calendar-spread etc.
- FIX Simulators
Simulators for NSE/MCX/BSE. FIX-venues that can be integrated with Symphony’s Broadcast Data Feeders to create Virtual-Exchanges.
- Excel Add-ins
To route orders to NSE/MCX/BSE and web-service components to receive live-market-data from MCX/NSE/BSE
- DLLs for AmiBroker connectivity
To route orders to NSE/MCX/BSE
Greek Soft ( Satisfaction level is still on lower side).
Chanakya ( Very limited user So can not comment on that).
Chanakya is a powerful decision support system meant to aid investors in detecting investment opportunities. The software detects opportunities to make risk-less profits between the spot market and the derivatives market either by deploying money or deploying securities. The software affords the user the flexibility of choosing his brokerage costs, financing costs and the minimum returns he is interested in getting.
A host of other features like Portfolio analysis, Speculative alerts, Market watch, Implied volatility calculations and graphical displays of Implied volatility make it a comprehensive decision support software for derivatives trading.
Chanakya provides the following features:
- Real-time detection of arbitrage opportunities between the spot and futures market and the spot and options market.
- The user can select the minimum rate of return that interests him, both in case of deploying of funds and deploying of securities. He can also select the securities he has in hand to deploy in the market.
- The user can input his transaction costs in the spot and derivatives market as well as his cost of financing.
- A thorough explanation of how each of the opportunities can be encashed can be viewed by simply clicking on the displayed opportunity.
- The user can view the Bid and Ask price of the underlying and the Bid and Ask price of all the derivative contracts based on the underlying on a single screen.
- The software does real-time calculation and displays implied volatility for all contracts based on the underlyings.
- The software gives a Summary Statement of the Market View of Volatility for each underlying for all three months based on the `Tightest Bid-Offer pair’ and `At-the-Money-Strikes’ method.
- The software gives a graphical representation of the price and implied volatility for all contracts based on the underlying.
- The user can construct his portfolio and analyse its performance in real-time. The software gives the expected profit from the portfolio, calculates and displays the Greeks and plots the pay-off profile and the profit versus volatility diagrams for each underlying.
- Using the speculative alerts the user can construct complex mathematical expressions using a variety of functions on the contracts in conjunction with arithmetic and logical operators. The software alerts the end-user whenever the criteria specified in the speculative alert is fulfilled.
NSE IT ( Out of all 5 main OMS from OMS NSEIT product seems to be lowest in clients).
If i missed out any of the OMS system providers in India do let me know.