Published On: Mon, May 18th, 2009

Chosing A Vendor EOMS For Program Trading

A question was recently posed “What do you think is the best broker-neutral EMS/OMS for sell-side program trading?” and continued “Especially interested in opinions on prepackaged algos, basket trading and specifically pairs trading abilities.” The answer would of course be a function of the requirements of the solicitor which they have kindly illustrated but of course everyone is different. The answer would also be a function of the responder. Don’t you think all software vendors would claim there’s is the best broker-neutral EMS/OMS for sell-side program trading?

Im the best ISV! No I am!

Well in fact they do. Here’s an example of a typical software vendor making that claim. “ULLink is a leading provider of global connectivity and trading solutions for large, medium and niche financial institutions, both on the Buy Side and the Sell Side”. How truly comprehensive can these applications be from a firm that started with selling connectivity solutions? Don’t get me wrong I have nothing against ULLink but I needed an example of a vendor claiming they are the last word in trading technology. ULLink offers the APAMA Algorithmic Trading product which is developed in partnership with Progress Software and they even claim on their website “Ready-to-trade: it comes with a library of preset, industry-favorite algorithms.” 100% true but how can a software vendor understand how markets work? Sorry guys but I’m betting any dealer can outperform those algo’s.

ullinklogo1How about “TradingScreen is a global provider of multi-asset class, multi-broker electronic trading solutions. Through its innovative products and services…” Having seen their product here in Asia I wasn’t so impressed. It was just another trading front end with a price feed a trading blotter and an order book. Their options screen was very unsatisfactory. It didn’t even offer a volatility surface. There is no need to continue to bash the software vendors. They all have their merits.

I think for best of breed algo’s I’d be more inclined to go with agency brokers whose survival depends on generating commission. We all know how easy it is for the fickle buy-side to trade away so any algo’s offered by an agency broker MUST perform. And for a front end offering a comprehensive Program Trading solution I would go with a tried and true vendor who is focusing on what they know. Software.

itg1ITG’s algorithms come to mind. They have a comprehensive suite of algo’s that offer many sophisticated and complex trading algorithms (including pairs trading with FX hedging). For example, volatility is up as we can see in the spreads of most names. ITG’s algos have a historical spread component and if there algo has to cross the spread it considers the current spread before sending out a slice. I’ve seen algos cross obscene spreads just because the volume profile says it should. ITG also offers a list-based algo called Dynamic Implementation Shortfall. This Algo manages risk at the basket level rather than by name. It also allows cash and sector neutrality on executed baskets to minimize risk on the residual list. Another agency broker offering pairs trading worth mentioning is Instinet.

Let’s take a look at the leaders of the EMS and OMS program trading business — Portware, Charles River Development (CRD) and Fidessa. (I left out Sunguard as they have a brokerage arm.)

Fidessa’s BlueBox algorithm suite includes the generic VWAP, TWAP, POV and Arrival. They have most recently added Invisible, Price Improvement and Shadow. Invisible is equivalent to Credit Suisse’s Guerilla or Citigroups’ Wait and Pounce which have been on the market for a long time. Both Price Improvement and Shadow are passive pegging algorithms. Hardly, pack leading stuff.

crdlogo1Portware Strategy Server offers a different approach to algorithm trading “allowing users to create complex trading strategies and algorithms”. They have chosen the Complex Event Processing (CEP) approach (much like ULLink) that would afford more control when your algo should send a slice. The downside to this is that you may not have the time to back test as rigorously as the agency brokers who depend on algo performance.

Charles River Development doesn’t offer any algorithms. They instead focus on the other aspects of trading from “counterparty discovery, trade placement, execution, and allocation to downstream trade processing” Of course there are other considerations like connectivity. How many markets/ECNs/MTFs do these vendors connect to? Cost is just as important. Does the cost justify the quality of the software vendor tools? How about reporting tools like pre-trade and post trade analytics? Or risk management? Or compliance? Does the platform offer multi-asset capabilities? Well most claim but how well are these different asset classes integrated in the vendors platform? Different assets require different fields including pricing information or position keeping and a homogeneous screen simply will not suffice.

When it gets right down to it the choice of best broker-neutral EMS/OMS for sell-side program trading would depend on how good the fills reported to the buy-side are. But I would be inclined to short list agency broker algorithms coupled with independent software vendors with a long term history in the EMS/OMS space.

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  1. FlexTrade seems to be missing from this analysis. FlexTrade has been around for more than 14 years and is widely recognised as the pioneer of algorithmic trading.

    FlexTrade is probably the only vendor that offer out of the box, pre-packaged algorithms across several asset classes.

    FlexTrade’s algos are used by some large sell-side institutions around the world.

    Finally FlexTrade has now a large presence in Asia with offices in Singapore and in Hong Kong.

    Below is a brief summary of FlexTrader’s key features.

    FlexTRADER is the industry’s first broker-neutral, quantitatively enriched execution management system (EMS) that encompasses all facets of electronic and algorithmic trading. Trusted globally by hedge funds and leading institutions on the buy-side and sell-side, FlexTRADER seeks and facilitates direct access to multiple sources of liquidity with incomparable robustness and speed.

    FlexTRADER offers unique, organically developed and integrated end-to-end functionality, including: pre-trade, real-time and post-trade analytics; advanced integrations with major OMSs; smart order routing; a sophisticated dark pool router; a fully integrated high performance Complex Event Processing (CEP) engine; commission management; indications of interest (IOIs); execution strategies; transaction quality management and execution management across multiple destinations for list and single-stock trading. In addition, its open architecture is configurable for multiple traders over a network, and runs on Sun Solaris, Linux and Windows NT operating systems.

    * Fully customized algorithmic trading.
    * The ability to control multiple portfolios comprised of several sub-accounts over many global destinations from one comprehensive trading blotter. Diagnostics such as cash constraints, trade cost estimates, transaction cost monitoring, sector and industry exposure, as well as custom calculations are available on the front-end.
    * Automated, customizable trading strategies include: VWAP, volume participation, random slicing, momentum, mean-reversion, adaptive pricing and best efforts. Each may be configured to a trader’s preferences for aggressiveness and expediency, or placed into a larger strategy, such as dollar neutral/sector neutral, to manage portfolio characteristics, risk or cash constraints.
    * Arbitrage customizable strategies include: convertible arbitrage, index arbitrage, ETF arbitrage, cross-border arbitrage (with the ability to hedge FX exposure automatically) and risk arbitrage (as part of our pairs trading module).
    * Comprehensive portfolio analytics that direct strategies based on historical and real-time information, such as volume profiles, volatility, spread and pricing data.
    * Customizable integrated smart order router, dark pool router and order replacement templates, as well as a full suite of rules-writing capabilities to ensure your system meets the increasing demands placed on trading professionals.
    * Access to nearly 250 trading destinations, including more than 20 dark pools.
    * A fully integrated, high performance Complex Event Processing (CEP) engine.
    * Full OMS integration through C#/ .NET, JAVA and C++ APIs.
    * Global ASP solution with fully-linked data centers in NY, NJ, Chicago, London, Geneva, Paris, Tokyo, Hong Kong and Singapore.

  2. Steve says:

    Bertrand,

    Thanks for the comment. The blog focuses on etrading in Asia and I have been in and around the zone for 5 years and never come across Flex Trade. But having said that we know that algorithm innovation has come out of the US and Asia always catches up. I would actually like to see your product and would be interested in a demo and would like to write about in this blog. Is that possible?

  3. Oxymoron says:

    The concept of broker neutrality is an interesting one. I’ve heard it used to describe an EMS that was owned by pure software vendor and also to describe an EMS that was provided by a bulge bracket broker which allowed connectivity out to all brokers. In the case of Portware I believe some people see it as ‘tainted’ by the fact that Merrill have a large holding in it. But is really that any different to the Triton and Newports of this world?

    Could we not further break the basket of products down by how you pay for them, some EMS you rent some take a turn on your orderflow, seemingly the buyside OMS’s such as CRD and Eze are also going in that direction.

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