Best Buy-Side EMS
Portware is building on its already-successful Execution Management System with a decidedly next-generation theme: machine learning.
Existing EMS technology “has taken trade and workflow automation as far as it could,” said Harrell Smith, head of product strategy at New York-based Portware. “We looked at the industry and realized that artificial intelligence represented the next wave of innovation in trading technology.”
In July 2012, Portware bought the technology and analytical assets of Aritas Group, including a portfolio of 17 patents covering predictive analytics and algorithmic-optimization technology. Portware rebranded Aritas’ Alpha Pro and Algorithmic Switching Engine as Portware Alpha Vision, and offered it to market participants as the first and only algorithmic optimizer that uses predictive analytics to select and implement optimal execution strategies.
According to Portware, Alpha Vision provides buy-side institutions with superior execution quality, end-to-end workflow automation, and powerful commission optimization tools, allowing for improved trading performance. Under its hood, Alpha Vision switches between algorithms and adjusts to market conditions in real-time to maximize alpha capture, while minimizing impact costs, adverse selection and friction from high-frequency traders.
“It provides an additional layer of analysis, suggesting certain strategies and algorithms,” Smith said. In addition to its algorithmic optimization, Alpha Vision serves as a powerful commission-optimization tool by enabling clients to route orders to their broker of choice.
“Clients get performance and efficiency, while the broker gets full credit for commissions and volumes,” said Smith. “Not only are we not disintermediating the broker, we are enhancing the buy- and sell-side relationship.”
Other big moves for Portware in 2012 were hiring Liquidnet veteran Alfred Eskandar as chief executive, and strengthening its FX capabilities. The company aims to continue to press the pedal to the metal as far as making buy-side traders’ live easier.
“Execution management systems, including those from Portware, have had a profound impact on buy-side trading desks by providing greater efficiency, reducing operational risk, automating workflow and providing access to global liquidity providers,” Smith said. Now, the next step is to apply machine-based learning to trading algorithms.
A core organizational strength of Portware has been the ability to adapt, both as a company and a product line. “Portware traditionally has been known as one of the most powerful, flexible and customizable trading systems,” said Smith. “That allows us to serve the highest tier of the asset management community.”
Large clients such as JPMorgan, T. Rowe Price, Lord Abbett, and AllianceBernstein have complex trading, workflow and automation requirements, “which can’t be met by turnkey, out-of-the-box trading solutions,” Smith said. “We have adapted our system to the demands of our clients as opposed to having clients shoehorn their workflows into an inflexible trading system.”
Although there’s been a small uptick in equity volumes in 2013, they remain well off 2007 levels.
“The challenge for the buy side in this low-volume, low-commission environment is to retain as many broker relationships as possible,” said Smith. “You can’t just rely on (Commission Sharing Arrangements) because they disincentivize brokers from providing a superior level of services. So the problem becomes, what tools can I use to direct my order flows to all my brokers without sacrificing execution quality?”
“We have adapted our system to the demands of our clients as opposed to having clients shoehorn their workflows into An inflexible trading system.” Harrell Smith, head of product strategy at Portware
Smith noted in that respect, Alpha Vision addresses the current market dynamics, characterized by shrinking order sizes and declining commissions. “This technology allows the buy side to get optimal trading performance while maximizing broker relationships,” he said.
Regarding the FX business, Portware’s expansion has been especially strong among global asset managers with complex trading, analytics and workflow-integration requirements.
“We’ve worked closely with our broker partners to integrate FX algorithms, and we have created our own suite of FX algos that dramatically improves workflow efficiencies, particularly for large buy-side institutions,” Smith said. “Our unique liquidity aggregation model allows the buy side to receive the optimum price and size with every order.”