Order Management Systems to Continue on Strong Growth Track Through 2012

9 July 2008

With rapid growth in trade volumes demanding that workflow become more efficient and effective, order management system (OMS) applications have an increasingly critical role to play in the asset management business for traders as well as portfolio managers and operations staff. Based on new research, TowerGroup predicts that global spending on OMS applications will grow over the next four years at a 12 percent compound annual growth rate – only slightly behind the 15 percent growth rate for the period 2002–2008.

TowerGroup finds this rate of growth to be outstanding compared to current buy-side spending overall, which it projects will grow only 7 percent to 8 percent over the next four years. Below is a graphic illustrating the rate of growth for OMS applications.

By dramatically improving trade workflow, OMS applications help portfolio managers to make better investment decisions and enhance trade execution. TowerGroup indicates that growth in the OMS sector is being driven by three key trends:

• Derivatives – Supporting derivatives is a critical requirement for an OMS. Derivatives represent a unique opportunity for OMS vendors to extend their franchise beyond traditional OMS functions and into new territory, including valuation, pricing, and risk management.

• Emerging Markets – With both the US and UK OMS markets saturated, international markets – specifically continental Europe, the Middle East, Asia including China and India, and South America – represent the strongest growth opportunities for OMS providers.

• Support for Wealth Management – Supporting wealth management features for investment managers is essential to OMS market growth. This includes expanding scalability to handle thousands of accounts and rebalance across them, offering portfolio modeling and advanced grouping at the household level, and incorporating functionality for more tax-efficient trading.

TowerGroup expects OMS vendors that roll out such functionality will have the opportunity to pick up significantly greater business in the next two to four years. Although the past three years have seen intense merger and acquisition activity in this market, TowerGroup finds that the leading OMS vendors have emerged successful and deeply entrenched in the buy-side business. Mergers and acquisitions have also led to new economic models in this segment, including brokers buying OMS systems and offering them to buy-side clients as part of a comprehensive brokerage offering.

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