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In the complex world of options and equity trading, investing in a modern, scalable trading solution is crucial. Professionals faced with choosing between an execution management system (EMS) and an order management system (OMS) often seek a simple, educational discussion. While the terms are sometimes used interchangeably, there are critical differences between the feature sets and functionality of an OMS versus an EMS.
An OMS and an EMS vary significantly in terms of feature sets, goals, and performance. Depending on your organizational structure, different vendors provide substantial differences in efficacy and trading necessities.
Many experienced professionals don’t fully grasp the nuanced relationship—let alone those aforementioned differences—between an EMS and an OMS. Put another way, no, it’s not at all unheard of that you may not inherently know if you need an order management system, an execution management system, or both.
What are Your Operational Needs?
Before diving into the functional differences, consider your firm’s operational needs and workflows; arguably, this is the best starting point for an initial discussion with a global trading system provider. That clarification alone is vital in determining whether you need an end-to-end, robust order management system (which typically includes execution management capabilities as well) or just a standalone EMS.
Important issues to consider also include:
- What type of trade flow are you working with?
- Are all of your trades in a principal capacity where your firm holds and maintains the positions?
- Are you trading in an agency capacity based on the needs of your professional customers?
Principal traders who require less operational overhead may, in turn, need a simpler system for order flow management; there’s routinely a heavier focus on position management and fostering just a few relationships with executing endpoints. These characteristics typically suggest that an EMS-centric solution is the best choice.
Conversely, agency traders frequently accommodate institutional clients and therefore demand more flexibility in terms of functionality. Additionally, agency traders must follow strict regulatory hurdles, such as CAT reporting and 15c3-5 (risk management). If your traders maintain multiple relationships with various executing endpoints and exchanges (algo providers, smart order routers, and direct market access venues, etc.), the more robust feature sets of an OMS will generally cover all of these needs, and more.
The Key Differences Between an EMS and an OMS
An execution management system is just that: a system where a user can create and send orders for execution, and process execution messages in response (usually in the form of simple orders that are created and routed for execution in a single step). Most EMS platforms will also maintain and present positions based on trading activity.
Because it customarily incorporates a vast network of connectivity, the execution capability of an OMS far exceeds that of an EMS platform. An order management system generally offers greater complexity in this arena, with the ability to stage orders before routing, allowing for pieces of an order to be worked in different ways for best execution. Additional order management features that are not consistently present on EMS platforms include the ability to establish automated routing rules, algo wheels, basket trading features, internal crossing mechanisms, and other tools that provide more customization for your firm’s order handling solutions.
Furthermore, OMS providers offer secondary and tertiary workflow solutions as part of an overall package. These might include:
- ACT/TRF reporting mechanisms
- Standard and custom end-of-day reports
- CAT reporting solutions
- TCA/606 reporting solutions
- FIX normalization and mapping
- Connectivity with clearing firms and prime brokers
- Various other third-party integrations.
System Requirements
Since OMS solutions often offer more features and customizations, they often demand higher processing power to operate effectively. This can be offset by choosing a modern OMS provider that offers more efficient solutions.
On the other hand, a typical EMS is lighter in terms of demand and resources because it’s simply not as sophisticated as an OMS. There may be significant differences in the system requirements to run one application versus another, such as a more recent operating system, faster processors, and increased memory for any machine running the application.
Robust Functionality
An OMS includes robust functionality than a stand-alone execution management system. For example, an OMS can include compliance and regulatory services, as well as modules built directly into the application.
Broader Network Connectivity
An execution management system is a linear, one-way street, where an order management system is the grid. You can foster a much bigger and more complex network with an OMS provider than you typically can with an execution management system.
Order management systems provide connectivity to larger networks with more third parties, middle and back-office systems, other industry providers, and vendors.
Risk Management
Risk Management features are a significant aspect of an OMS solution that isn’t necessarily integrated into an EMS platform. Middle office functionality is also a big part of this.
By integrating these critical reporting and risk functions, you cut down on cumbersome manual processes to reduce errors and increase operating efficiency.
What are the Advantages of a Product that Combines the Functionality of an OMS and EMS?
Ultimately, a platform should include the right ingredients and components for growth. An integrated system that combines an OMS with an EMS (you may sometimes also see this referred to as an “OEMS”) could help ensure not just growth, but stable growth. By adding an additional tool within the same network, you can fuel expansion and growth into new markets and products without the added risk of working with a brand-new, untested partner.
Licensing a new system requires extensive training, customizations, etc. Working with an integrated OEMS provider ensures minimized downtime when you need new features.
Instead of training on new screens and processes, you can simply add functionality without additional training, therefore, downtime. Bonus: You get to work with the same account executives for an even more seamless experience.
Selecting the EMS or OMS for Your Operational Workflows
The first conversation we have with our new partners starts with a question we covered somewhat extensively here: What are your operational needs?
We collaborate with firms to determine whether a lightweight EMS or a more integrated OMS will help scale and grow the business. TRAFiX can match the specific needs of both principal and agency traders with industry experts who can help assess your dependencies while recommending optimal configurations to enhance your trading operations.
We don’t just consider where you are today. We are deeply invested in your future success. For an informational discussion and to learn more about our global trading advantages, let’s set up a time to talk today.