What an Order Management System (OMS) Does for Finance, Business

What Is an Order Management System (OMS)? 

An order management system (OMS) is an electronic system developed to execute securities orders in an efficient and cost-effective manner. Brokers and dealers use an OMS when filling orders for various types of securities and can track the progress of each order throughout the system.

An OMS in the financial markets may also be referred to as a trade order management system.

Businesses—ecommerce businesses and sellers in particular—also use an OMS to streamline and automate the sales and fulfillment process from the point of sale to delivery to the customer.

Understanding an Order Management System (OMS)

An OMS is a software system that facilitates and manages the execution of trade orders. In the financial markets, an order must be placed in a trading system to execute a buy or sell order for a security.

A trading order typically contains the following information:

• Security identifier (i.e., its ticker symbol)
• Order type (i.e., buy, sell, or short)
• Order size
• Order type (e.g., market, limit, stop, etc.)
• Order instructions (e.g., day order, fill or kill, good-’til-canceled, etc.)
• Order transmission (broker, electronic communication network [ECN], at-the-close [ATC], etc.)

An OMS executes trades through a software system using the Financial Information eXchange (FIX) protocol. FIX is an electronic communications protocol used to share international real-time exchange information related to the trillions of dollars of securities transactions and markets.

However, communicating transactions can also be done through the use of a custom application programming interface (API). The FIX protocol links hedge funds and investment firms to hundreds of counterparties around the world using the OMS.

Special Considerations

Among institutional trading desks, an OMS can be used on both the buy-side and the sell-side to allow firms to manage the life cycle of their trades and automate and streamline investments across their portfolios.

For review, the buy-side is a segment of Wall Street made up of investing institutions such as mutual funds, pension funds, and insurance firms that tend to buy large portions of securities for money management purposes.

The buy-side is the opposite of the sell-side. The sell-side does not make direct investments; instead, it provides the investing market with investment recommendations for upgrades, downgrades, target prices, and other opinions.

Together, the buy-side and the sell-side make up both sides of Wall Street.

Securities Trading OMS

There are many products and securities that can be traded or monitored with an OMS. Some of the financial instruments traded by using an OMS include:

• Equities
• Fixed-income products such as bonds
• Currencies
• Commodities such as crude oil or copper
• Loans
• Cash
• Derivatives, which might consist of options on interest rates and currencies

Typically, only exchange members can connect directly to an exchange, which means that a sell-side OMS usually has exchange connectivity, whereas a buy-side OMS is concerned with connecting to sell-side firms. When an order is executed on the sell-side, the sell-side OMS must then update its state and send an execution report to the order’s originating firm.

An OMS should also allow firms to access information on orders entered into the system, including details on all open orders, and previously completed orders. The OMS supports portfolio management by translating intended asset allocation actions into marketable orders for the buy-side.

Benefits of a Trading OMS

Many OMSs offer real-time trading solutions, which allow users to monitor market prices and execute orders in multiple exchanges across all markets instantaneously by real-time price streaming. Some of the benefits that firms can achieve from an OMS include managing orders and asset allocation of portfolios.

An effective OMS is critical in helping with regulatory compliance, including real-time checks of trades both before and after entry. OMSs help compliance officers with tracking the life cycle of trades to determine if there’s any illicit activity or financial fraud, as well as any regulatory breaches by an employee of the firm. An OMS can improve workflow and communication among portfolio managers, traders, and compliance officers.

OMSs are an important development in the financial services industry because of the real-time monitoring of positions, the ability to prevent regulatory violations, the speed and accuracy of trade execution, and the significant cost savings that result.

Business OMS

In addition to trading OMS, there are several other contexts for order management. Businesses can use OMS to keep track of customer orders from point of sale to delivery and to take care of returns and refunds. This is especially useful for businesses that have a high volume of sales or rely on shipping via ecommerce.

Therefore, choosing an OMS will depend on the type, size, and scope of the business involved. Costlier systems will also have more features and abilities, such as taking order payments in a variety of currencies, routing suppliers and warehouses based on location or proximity, tracking customer order status, and forecasting inventory status to anticipate possible shortages of supply, invoicing, and returns/exchanges.