Unlocking the Power of Advanced EMS Solutions for Hedge Funds

In today’s highly competitive financial markets, hedge funds are constantly seeking innovative ways to gain an edge over their competitors. One key area of focus is the trading process itself, where established firms looking to enhance their execution capabilities are increasingly turning to advanced Execution Management System (EMS) components that can be seamlessly plugged into their existing technology stacks, with little disruption to workflow.

Forward-looking firms now realise that following this ‘best-of-breed’ approach can provide them with the powerful and versatile EMS capabilities they need to navigate complex trades and multi-asset strategies with ease, while streamlining their operations and enhancing their overall trading performance in the process.

The weakest link?

When first launching, hedge funds are often drawn to ‘all-in-one’ solutions that provide front-to-back portfolio management, order management and execution management capabilities via a single solution. As we’ve discussed before, this makes perfect sense, as new funds often have limited resources for the various tasks they have to perform. Adopting multiple solutions from different vendors can be costly and onerous, often requiring multiple implementations and integrations. Workflow between systems can be cumbersome, and potential compatibility issues can lead to an excess of fail points. Whereas an all-in-one approach can ostensibly give them everything they need in a single solution from day one.

However, with many ‘all-in-one’ solutions, the EMS component is often the weakest link, particularly if the solution has come about as a result of a vendor stitching products together following mergers and acquisitions, or if a legacy portfolio management or order management system has been expanded to include some EMS capabilities, for example. This can be a problem for hedge funds as they grow, as their needs become more complex, and as they find themselves constrained by the limitations of their systems.

What the EMS should offer

To get around these limitations, a number of hedge funds are now augmenting their existing technology stack with state-of-the-art EMSs, such as the TORA EMS, which provides a comprehensive set of features and capabilities that empowers firms in their pursuit of efficient and optimised trade execution.

To ensure maximum flexibility and comprehensive market coverage, the EMS should provide multi-asset and multi-market support to enable trading across various asset classes, such as equities, fixed income, commodities, and foreign exchange, while providing access to multiple market venues, including exchanges, alternative trading systems, and dark pools.

Funds looking to manage complex trading strategies such as pairs, baskets, lists, and program trades need advanced functionality and tools within the EMS to execute orders for multiple securities simultaneously, to monitor and manage positions, and to adjust execution parameters dynamically based on market conditions or portfolio requirements.

The EMS should offer the ability to connect with multiple brokers across various geographic locations. This ensures that the fund has access to a diverse range of liquidity providers, execution services, and local market expertise, enabling the firm to capitalise on global opportunities and navigate different regulatory environments. By seamlessly integrating with numerous brokers, the EMS can help hedge funds enhance their trading reach, optimise execution, and diversify counterparty risks.

Rules-based smart order routing capabilities are needed to allow hedge funds to optimize their trade execution based on factors such as price, liquidity, speed, and market impact. By intelligently routing orders to the most suitable execution venue, the EMS can help hedge funds achieve better execution, reduce trading costs, and enhance overall trading performance.

Advanced functionality should be provided for handling complex allocation scenarios, including the ability to allocate trades across multiple accounts, portfolios, and investment strategies based on customizable rules and criteria, such as pre-trade allocation models, percentage breakdowns, or specific investment mandates. By supporting complex allocation, the EMS enables funds to efficiently manage their trade executions while maintaining proper diversification, risk exposure, and compliance with investment guidelines.

Advanced algorithmic trading capabilities are needed to allow hedge funds to develop, test, and deploy custom strategies that enable efficient execution, exploit market inefficiencies, and minimize the market impact of trades, along with real-time analytics and monitoring tools to enable traders to assess market conditions, track individual trades, and manage positions, empowering them to make informed decisions and quickly react to changing market dynamics.

Integrated risk management tools, including real-time monitoring, alerts, and the ability to adjust trading parameters dynamically to maintain the desired risk profile should be included to help firms assess and manage the risks associated with their trading strategies.

A modern, well-designed EMS should have well-documented APIs that allow it to easily and seamlessly integrate with other systems, such as order management systems, portfolio management platforms, risk management tools, and other internal and external applications.

Regulatory compliance should be facilitated by the EMS’s ability to automatically generate necessary reports, to maintain an audit trail of trading activities, and to provide tools to monitor and manage compliance risks in real-time.

Finally, The EMS should be built on a high-performance infrastructure that minimizes latency and ensures reliable trade execution. This is crucial for hedge funds employing high-frequency or latency-sensitive trading strategies.

Changing the tyres

For established hedge funds looking to enhance their execution management capabilities, the TORA EMS provides all of the above features and functions, and more. And the good news is that plugging the TORA EMS into a firm’s existing trading technology stack does not have to be too difficult, costly or disruptive.

TORA’s EMS is architected in such a way that it can be implemented to either augment or replace a firm’s existing EMS with very little disruption to the firm’s trading workflow, which means that customers benefit from our extensive and comprehensive execution management functionality without having to change how they work or completely strip out existing systems. If changing an OMS is analogous to changing the engine of a car, changing an EMS should be like changing the tyres, i.e. far less disruptive.

At TORA, we believe that technology solutions should be able to grow with their clients. Start-ups can very quickly grow in assets under management, in complexity, in the number of funds they manage, in the assets they trade and in the regions in which they operate. The TORA platform, built around a microservices architecture, allowing each service to be scaled and deployed individually to meet the needs of the client, is designed to support that growth.

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Tora Trading Services LLC is registered with the SEC and a member of FINRA, SIPC, NFA. TORA Trading Services Limited is regulated by the HK SFC. This communication is for informational purposes only and intended for institutional customers and eligible counterparties as defined by the respective regulators/authorities. Not all TORA services and related services are offered via the regulated entities. In addition TORA services are not available in all jurisdictions.