In this article, we'll explore what an Order Management System (OMS) is, its capabilities, how it works, and the benefits it brings to investment managers. We'll also address common misconceptions about what a buy side OMS is and isn’t.
For full disclosure, Limina offers a Trade Order Management System. This article, however, isn’t a pitch for our solution (or any other solutions), but merely an educational article on the topic of Order Management Software.
An Asset Management OMS Software serves as the central nervous system of a company’s investment workflows, where trade orders begin their journey. It offers a range of functionalities that streamline daily investment activities, automate allocations, provide real-time analytics, and enhance compliance controls. Portfolio managers, trade operations, traders, and compliance officers typically use OMS systems in both the front and middle office.
To fully understand the value of Order Management Software, it's important to differentiate it from an Execution Management System (EMS). While both systems facilitate order placement and tracking, an OMS focuses on broader front and middle-office workflows, catering to multiple users. On the other hand, an EMS is designed primarily for traders, offering access to real-time market data and connectivity trading venues.
In the following sections, we'll delve deeper into the capabilities, benefits, and features of Order Management Systems, clarifying any confusion with concepts commonly associated with OMS so you can empower your business with efficient and streamlined workflows.
What is an Order Management System (OMS)?
An Order Management System (OMS) is the heart of your investment workflows. It serves as a platform where trader orders are created and evolve through their trade lifecycle. Key features of an OMS include rebalancing, order routing, real-time analytics, and compliance capabilities. OMSs are primarily used for automation in the front and middle office.
Features of an Order Management System in finance
The Best OMS Trading Systems encompasses various features and capabilities that are essential for effective investment management and trading operations. These capabilities streamline and automate processes, providing investment managers with the tools they need to efficiently manage portfolios. Here are some key features and capabilities that fall under an OMS:
Portfolio Modelling and Rebalancing
OMSs sometimes offer portfolio modelling tools that help portfolio managers assess the impact of potential trades on their portfolios. They can simulate different scenarios, analyse the potential risks and returns, and rebalance portfolios to align with investment objectives. This functionality often overlaps with Portfolio Management Software to create a Portfolio and Order Management System (POMS).
Order Generation
OMS software allows portfolio managers to create and generate orders based on their investment strategies. It provides them with a high-level view of their portfolio, enabling them to make informed decisions when adjusting their holdings.
Compliance and Risk Management
OMSs have built-in compliance functionality that enables investment managers to adhere to regulatory requirements and internal investment guidelines. They can set predefined compliance rules and monitor trades in real-time to ensure adherence to these rules.
Real-time Analytics
An OMS provides real-time analytics and reporting capabilities, giving investment managers access to key portfolio performance metrics, such as profit and loss (P&L), exposures, and other risk measures. These analytics help them monitor portfolio performance and make data-driven investment decisions.
Order Allocations
An OMS can facilitate the allocation of trades across multiple accounts or funds based on predefined rules. This feature is particularly useful for asset managers who manage multiple portfolios or funds and need to allocate trades proportionally and in a compliant manner.
Integration with Execution
An OMS can integrate with Execution Management Systems (EMS) and/or outsourced trading providers, to provide a seamless workflow from order generation to trade execution. For simple trading requirements, an Order Management System can route orders directly to brokers, which negates the need for an EMS. This feature ensures timely and accurate execution of trades, minimising manual intervention and reducing the risk of errors.
Overall, an OMS serves as the central nervous system of investment workflows, providing investment managers with the necessary tools to efficiently manage portfolios, execute trades, and ensure compliance with regulatory requirements. Its capabilities enable streamlined processes, increased operational efficiency, and better decision-making for investment managers.
Other systems confused with Order Management Software
When discussing Order Management Systems (OMS), it's common to encounter confusion with other systems that are adjacent in the workflow of an investment manager. In the below illustration, we highlight the most common types of systems and where they typically fit in the workflows.
The system confused most often with an OMS is the Execution Management System (EMS). The distinction between an OMS and an EMS can be challenging to define, as functionality sometimes overlaps between the two.
To understand the difference, it's helpful to consider the primary users of each system. Order Management Systems are typically used by portfolio managers, while Execution Management Systems are utilised by traders. The OMS provides portfolio managers with a high-level working view of the portfolio and generates orders based on their instructions. For example, a portfolio manager may decide to reduce the exposure to a specific stock and issue instructions to the OMS accordingly. The OMS will then translate those instructions into precise sell orders and send the information to the trader.
On the other hand, Execution Management Systems offer traders real-time market data and access to various trading venues. These systems focus on speed and efficiency, allowing traders to split sell orders across different venues and make use of advanced execution options.
While OMSs and EMSs serve distinct purposes and cater to different user roles, recent trends have seen an increasing emphasis on the integration of these systems. Integrated OMS/EMS solutions combine the functionalities of both systems, providing benefits across investment, trading, compliance, technology, and operations departments.
The Benefits of Investment Order Management Systems
Investment Order Management Systems offer numerous benefits to investment managers and trade operations. Here are some of the key advantages of implementing an OMS:
Enhanced Portfolio Management
OMSs provide portfolio managers with a high-level working view of their portfolios. They offer features like modelling, what-if scenarios, and real-time analytics, enabling managers to make informed investment decisions and optimise portfolio performance. Furthermore, the software helps automate the process of order creation, routing, and allocation, saving time and reducing manual errors.
Improved Compliance Capabilities
OMSs incorporate advanced investment compliance functionalities, ensuring adherence to regulatory requirements and internal policies. They perform real-time compliance checks, monitor trading activities, and generate compliance reports, helping asset managers mitigate compliance risks.
Multi-Asset Class Support
Modern OMSs support shall support all asset classes, surpassing their historical focus as equity order management systems. They allow investment managers to trade across different asset types, such as equities, fixed income, derivatives, and more, providing flexibility and diversification opportunities.
Traditionally, the Order Management System FIX connections have been the only way to route orders. In recent years, this has expanded to other electronic ways to trade, such as via API, and also support of semi-manual workflows where electronic isn't yet possible.
Scalability and Future-Proofing
A system should be configurable, flexible, and capable of scaling up to accommodate future growth. Investing in a platform that can adapt to changing needs and support evolving trading requirements helps firms avoid costly upgrades or system replacements down the line.
Increased Operational Efficiency
By automating trade-related processes and providing comprehensive trade data, Order Management Software contributes to operational efficiency. It minimises manual tasks, improves trade accuracy, and facilitates straight-through processing (STP), leading to cost savings and faster trade settlement.
OMSs act as a centralised repository for trade-related data, allowing easy access to historical and real-time information. Traders, portfolio managers, and compliance officers can quickly retrieve trade details, monitor positions, and generate reports for performance analysis and decision-making.
Key takeaways of this article on Asset Management OMS
In summary, implementing an OMS offers investment managers and trade operations a range of benefits, including streamlined investment activity, improved portfolio management, enhanced compliance capabilities, support for diverse asset classes, scalability, increased operational efficiency, and centralised trade information. By leveraging the features and functionalities of an OMS, asset managers can optimise their trading operations and drive better investment outcomes.
We hope that this article has been useful in order to understand what an Order Management System is, how it helps investment managers and how it does just that. We also hope to have cleared any potential misconceptions about what a buy-side OMS is and isn’t.
If you found this article useful, why not sign up for our monthly email list where we share the latest research, guides, and insights from the buy-side industry?
Alternatively, if you’d like to explore Limina’s OMS, you can watch this online demo or request a live demo:
.svg)
