Why banks look to switch OEMS provider
OEMS considerations
Historically, OMSs and EMSs were developed separately. However, the trend of including EMSs and OMSs in a single offering started to emerge in around 2008, with the merging of order management and portfolio management functions, followed by the addition of transaction cost analysis (TCA) functionality. OEMSs attempt to straddle the whole trading process and tend to rely on a catalogue of dedicated modules to cater for specific client uses, allowing access to multiple trading venues, full depth market data feeds and broker algorithms.
OEMSs are of critical importance to a bank’s operational processes, providing the foundations for trade efficiency, effective risk management and the capability for best execution to be delivered. As such, it is essential for banks to ensure that at all times, their OEMS solution is fit for purpose and able to meet trading needs amid ever changing technological and regulatory environments.
With this in mind, banks may regularly weigh up the prospect of switching to a new OEMS provider and enhance their trading performance. Specifically, GreySpark observes five key reasons as to why banks may switch OEMS platform provider:
Cost and Total Cost of Ownership (TCO): Licensing costs are not the only consideration; banks need to weigh up the costs of infrastructure (on-premise, but also managed hosted), vendor-led professional services and internal staffing, as well as contending with built-in price increases and ratchetting mechanisms baked into the provider’s contracts. Headcount or volume-based licenses can also cause increases in TCO.
Vendor Lock-in: Often with legacy out-of-the box solutions we observe excessive levels of customisation to serve the bespoke and unique requirements of the business. This in turn can result in long-term, disadvantageous contractual terms and service level agreements (SLAs), leading to a loss of bargaining power come the time of contract renewal.
Vendor Risk: Vendors are prone to their own operational and cyber risks; third-party risk and operational resilience are at the top of the regulatory agenda which all banks must address. Vendor concentration needs to be abated in this context, especially when vendor companies are also susceptible to takeovers and
changes of ownership.
Falling Quality of Service: Vendors with a dominant market position can become complacent, leading to a lower degree of prioritisation toward customer service. This leads to less resources being allocated to customer support and an attrition of expert vendor staff. As a result, firms find it difficult to enforce SLAs with limited or no recourse.
Slowing Innovation: Legacy core technology limits the ability to adapt to new market practices or conditions. For example, technology built on a hub and spoke model is not able to compete with more modern cloud-based SaaS solutions. Older production versions impede the roll out of new features when available, leaving their clients unable to benefit from the latest release or upgrades.
However, reaching the desired end-state when implementing a new OEMS solution presents numerous challenges that banks must consider:
Cost to Implement: Licences and infrastructure costs during the parallel run are by far typically the biggest unbudgeted costs when switching to a new OEMS provider. Capital expenditure associated with implementation of new systems (development of missing features, project management, integration and customisation work) is often under-estimated. There is a pressure to complete implementation within the contract renewal window otherwise, there is a risk that the incumbent vendor will apply punitive pricing if a contract extension is needed in case of delay.
Making the Right Choice: Selecting the right vendor requires a measured process which considers the risks, trade-offs and benefits of each prospective vendor solution. Running a considered process can help the firm retain optionality and avoid further new lock-in, as well as providing an opportunity to establish trust and lay down the foundation of a balanced long-term relationship.
Scale of Change: The timelines involved need to be measured in years, not months, and the budgeting cycles and decision-making process needs to be able to accommodate this.
Project Objectives: Defining the functional scope in terms of “as-is” versus improvements needs to be detailed enough to provide a measurable view of what needs to be done. Identifying a true sense of what to buy, build or reuse must be determined.
Alignment of Mindset: Making the right technology choices is not just an IT project but also a business transformation project. The business needs to embrace change across IT, operations and front office departments and not just replicate old practices and workflows in a new system.
For all major asset classes, GreySpark can bring proven expertise across the full trade lifecycle on the key processes, applications and technology infrastructure that the end users require in order to conduct their business efficiently, while also providing expertise on how best to leverage the functionalities on offer from an OEMS provider.
Please do not hesitate to reach out to us with any enquiries or questions you may have. We are always happy to elaborate on the wider implications of these headlines from our unique capital markets consultative perspective.