Study: Buy Side Lowballs TCO

In a recent study, Lifting the Curtain on OMS/EMS Total Cost of Ownership, TORA, in cooperation with Aite Group, found that buy-side firms often underestimate TCO and the costs their sell-side trading partners are absorbing on their behalf.

The independent research examines the explicit and implicit costs of these systems and is based on in-depth interviews with heads of trading, chief technology officers and chief operating officers at global hedge funds. OMS/EMS TCO is a key consideration for all buy-side firms including long-only, pension funds, family offices, and hedge funds. The research is designed to help firms understand the TCO of these systems which will be essential under MiFID II.

Key Takeaways from the research include the following:

• Buy-side firms will need to understand the TCO of their OMS/EMS platforms under MiFID II to avoid unintended inducements.
• Competition and regulatory pressures are leading funds to examine the TCO of their technology stacks to better understand the value of these systems to their firms.
• Many firms are unaware of, or significantly underestimate, how much their sell-side trading partners are paying to their OMS/EMS and FIX network providers on their behalf, and how this impacts the level of service they receive in return.
• Indirect costs associated with OMS/EMS ownership including integrations and custom development often exceed the direct costs.
• Most hedge funds report using only 20% to 30% of the OMS/EMS functionality they pay for, and would prefer to pay for only the modules/functionality that they use.
• Cloud-based systems have the potential to deliver lower TCO.

“Unfortunately, it is not until after a system is up and running that firms realize the cost of ownership extends well beyond the software license and the implementation cost,” said Robert Dykes, CEO of TORA. “The costs for ongoing maintenance, system enhancements and integrations need to be considered up front, and buy-side firms should demand transparency around the total value of their relationship to the vendor.”

“The technology upon which an OMS or EMS is built, and the degree to which these systems are integrated, are significant factors in lowering TCO,” added Spencer Mindlin, an analyst at Aite Group. “These should be major considerations as firms look for systems that will support them today, and into the future, and those that are cloud-based will enable new funds to get to market quicker and keep costs down.”