Buy-side trading: OMS and EMS integration

This blog has covered OMS and EMS many times before - What's the difference between an EMS and an OMS?, What does it cost to run a buy-side OMS and EMS environment?, The OEMS, dead-end or an idea before it’s time?The buy-side OMS, an appreciation part one, What is the real-money, buy-side OMS market worth? and others...The concept of integration of an OMS and an EMS is one that folks return to time after time.  I want to look at one important point - the integration between buy-side compliance, OMS and EMS.  A refresher on buy-side compliance systems is "Buy-side compliance systems: Still 20th Century technology?"

The crux of the matter is that the buy-side OMS integration with a compliance system is based on an interactive model - that a dealer clicking on buttons forces the compliance engine to execute commands to establish if an order can be released to a specific broker.

So let's imagine a scenario:

  1. Buy-side dealer attempts to release an order to broker X
  2. Compliance engine says no, cannot trade with broker X. 
  3. Buy-side dealer picks another broker.
  4. Compliance engine says yes, you can trade with broker Y.
  5. Broker Y receives order and executes, all good.
Now, a second scenario:
  1. Buy-side dealer attempts to release an order to broker X via an EMS
  2. Compliance engine says yes, can trade with "broker EMS" since the EMS is configured like a broker in the buy-side OMS. 
  3. In the EMS the buy-side dealer attempts to release an order to broker X
  4. No compliance engine in the EMS, so broker X receives order and executes
  5. Later on compliance breach team and mandate management team kick off an investigation about why a dealer executed for this portfolio with broker X when it's clearly not allowed. 
The underlying issue is that there is no linkage from OMS compliance engine to the EMS which indeed is often off the premises and effectively a "black box".

Answer - either work around this OR build a proper multi-asset class OMS and EMS combined with access to a single version of the truth.

Conclusion: When you are at the search and selection stage for an EMS - ask your EMS provider to read this post and ask them to say how exactly they avoid this issue. 

Note: If their answer involves the words "infrequent", "FTP", "manual process" or "phase two deliverable" my polite advice is run for the hills...