Anthony Malakian: There’s No ‘Simple’ in Integration

It is budget season again. CIOs on the buy side are looking to 2013 and trying to figure out how to stretch their dollars. For many, as budgets continue to be constrained, integrating systems has become their raison d’être.

According to a recent study conducted by Stamford, Conn.-based consultancy Greenwich Associates, 44 percent of hedge funds cut their trading desk budgets this year compared to last, while 40 percent reported flat spending. For the purposes of this study, these budgets were a combination of technology spending and trader compensation, but excluded capital allocated to pay trading commissions. Greenwich says the majority of spending is going toward order management systems (OMSs) in the US and UK, whereas hardware is getting the greatest attention in continental Europe and Asia excluding Japan.

Ken Ennis, an executive director at Greenwich, says the reason for the bulk of UK and North American buy-side firms spending on their OMS is that they are trying to integrate these systems with their execution management systems (EMSs) and transaction-cost analysis (TCA) tools. This is because these firms have to get by with fewer people on the desk to manage these systems, thus leading to far greater integration, he says. But the challenge facing funds is that they have to integrate these systems with constrained budgets, unlike in the past when they could throw dollars at the problem.

“You would think that integration work with the OMS, EMS and the other systems involved in trading would be on the table for increases, but it’s hard to see with cost challenges a noticeable uptick within the next year or two,” Ennis says.

Dog in This Fight
I recently spoke with a number of executives from a large OMS/EMS provider, and they said that reason for this trend—it’s important to remember that they have a dog in this fight—is that buy-side firms are looking for any way possible to manage down their total desktop costs by consolidating the number of EMSs they use to execute orders. But without proper integration, the trades don’t get passed from the OMS to the EMS efficiently, thus creating confusion as to why a trade is not being processed.

For many, as budgets continue to be constrained, integrating systems has become their raison d’être.