LSEG-TORA deal advances EMS conglomeration trend

The announcement by the London Stock Exchange (LSEG) that it has agreed to acquire TORA, an Asia-focused front-to-back multi-asset trading platform, further advances the conglomeration trend in the execution management system (EMS) industry.[1] Financial powerhouses are working to provide clients with integrated front-to-back workflow process technology, data and analytics. This can be a compelling proposition for investment managers seeking to get more functionality and services for less cost by consolidating their vendor relationships with larger firms that offer more economies of scale. Chartis Research analyst Michael Mollemans believes that this conglomeration trend will continue, as more EMS workflow technology is packaged with front-to-back workflow processes, data and analytics.

EMS industry conglomeration trend

EMSs are front and center for traders, but the investment lifecycle starts with the investment team and workflows that are managed within the portfolio management system (PMS) and order management system (OMS). In recent years, financial powerhouses have been busy filling gaps in their workflow solutions, multi-asset functionality and crypto coverage, with the aim of offering clients a one-stop shop across front-to-back workflow processes and the data and analytics they use.

Conglomerate players have done much in recent years to fill functionality gaps quickly through acquisitions (see Figure 1). In just the past few years, LSEG has acquired Refinitiv, Broadridge has acquired Itiviti, FactSet has bought Portware, State Street has bought Charles River and ION Group has acquired Fidessa. Although this consolidation trend appears to be a recent phenomenon, it isn’t. The industry consolidation lifecycle has been moving through waves of advancement and retracement for decades.

Figure 1: EMS workflow technology vendor consolidation lifecycle

Source: Chartis Research

In the 1990s, Bloomberg gained significant market share around the time when the adoption of the Financial Information eXchange (FIX) protocol put demand for integrated workflow technology into overdrive, at the expense of a myriad of single-dealer portals and client-order gateways. In the 2000s, a strategic consolidation trend ramped up on the back of US equity market decimalization, as banks acquired EMS vendors to help them expand their presence on the trader’s desktop and their use of execution algorithms (Lehman acquired RealTick, for example, while Bank of America acquired InstaQuote). In the 2010s, a ‘shakeout’ retracement consolidation trend took hold as banks cut platforms that were not achieving their strategic goals (Citigroup cut LavaX, for example, while Bank of America cut InstaQuote).

Integrating and virtualizing the investment lifecycle

As M&A deals increase among ‘buy-side’ asset managers, so too does the need for a more dynamic, agile, multi-asset trading technology stack. Growing investment enterprises are increasingly relying on modulated services to deliver best-of-breed solutions to meet the needs of disparate regional and remote teams and outsourced solution providers.

Equity, fixed-income, derivatives, forex, and crypto-specialist teams need to be able to swap in and out of best-of-breed microservice containers, while remaining attached to a common firm-wide integrated platform, and without having to be tied down to integrated, but outdated, monolithic on-premise deployments.

Virtualizing the investment lifecycle around best-fit interoperable microservice containers, within a cloud-native or cloud-based infrastructure (see Figure 2), allows teams to customize their desktop real-estate around asset-class-specific workflows, while staying in synch with the wider organization through common application programming interface (API), FIX or other data communication protocols.

Figure 2: Virtualizing the investment lifecycle

Source: Chartis Research

Conglomerate players looking to fill functionality gaps through acquisition may run into integration challenges, or may need to re-platform. Gluing regionalized or compartmentalized platforms together is easier said than done. Sometimes a single EMS vendor can’t even speak to itself across regions or asset classes. And sometimes a global license with an EMS vendor may be prohibitively expensive, so that a US trader would be unable to interact with European orders or may even be unable to take European orders into the EMS. Most EMS vendors claim to have global reach and multi-asset capabilities, but penalizing fee structures often undermine these performance claims.

More conglomeration deals to come

Chartis analyzed 20 EMS vendors for its ‘Execution Management Systems, 2021: Market and Vendor Landscape’ research report. It assessed EMS vendors across 10 market potential and completeness of offering factors, including functionality, interoperability, automation, breadth of access to markets/brokers, ease of use, workflow efficiency and speed, data visualization, alerts, and multi-asset coverage. Chartis believes that the LSEG-TORA acquisition will generate significant market potential and completeness of offering gains for the group, and that more conglomeration deals will follow. We believe that EMS vendors such as Adroit Trading Technologies, Horizon Software, InfoReach, Quod Financial and smartTrade (currently Chartis RiskTech Quadrant^® ‘Best of breed’ providers and ‘Category leaders’) are ones to watch closely in the coming years.