Order management system
An "order management system", or OMS, is a computer software system used in a number of industries for order entry and processing.
Electronic commerce and catalogers
Orders can be received from businesses, consumers, or a mix of both, depending on the products. Offers and pricing may be done via catalogs, websites, or broadcast network advertisements.
An integrated order management system may encompass these modules:
- Product informaton (descriptions, attributes, locations, quantities)
- Inventory availability (ATP) and sourcing
- Vendors, purchasing, and receiving
- Marketing (catalogs, promotions, pricing)
- Customers and prospects
- Order entry and customer service (including returns and refunds)
- Financial processing (credit cards, billing, payment on account)
- Order processing (selection, printing, picking, packing, shipping)
- Data analysis and reporting
- Financials (accounts payable, accounts receivable, general ledger)
There are several business domains which use OMS for different purposes but the core reasons remain the same:
- Telecom - To keep track of customers, accounts, credit verification, product delivery, billing, etc.
- Retail - Large retail companies use OMS to keep track of orders from customers, stock level maintenance, packaging and shipping
- Pharmaceuticals and healthcare
- Automotive - to keep track of parts sourced through OEMs
- Financial services
Order Management requires multiple steps in a sequential process like Capture, Validation, Fraud Check, Payment Authorization, Sourcing, Backorder management, Pick, pack, ship and associated customer communications. Order management systems usually have workflow capabilities to manage this process.
Another use for order management systems is as a software-based platform that facilitates and manages the order execution of securities, typically through the FIX protocol. Order management systems, sometimes known in the financial markets as Trade Order Management Systems, are used on both the buy-side and the sell-side, although the functionality provided by buy-side and sell-side OMS's differs slightly. (Typically only exchange members can connect directly to an exchange, which means that sell-side OMS's usually have exchange connectivity, whereas buy-side OMS's are concerned with connecting to sell-side firms.)
OMS's allow firms to input orders to the system for routing to the pre-established destinations. They also allow firms to change, cancel and update orders. 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 detail on all open orders and on previously completed orders. Sell-side OMS's may offer direct market access and support for algorithmic trading. The development of multi-asset functionality is a pressing concern for firms developing OMS software.
- Rebalance - The periodic reallocation of a fund's asset allocation / market exposures to correct for market valuation changes and cashflows
- Tracking - Periodic adjustment to keep align Index Fund or SMA with their target
- Discretionary - Changes initiated by Portfolio Managers and Analysts
- Tactical - Changes made to capture temporary inefficiencies TAA
Because these change often effect hundreds to hundreds of thousands of accounts creating hundreds of thousands of small orders, and because there is a legitimate fear of front running; the orders generated from the Portfolio Management process are typically grouped into aggregate market orders and crossing orders. When the position changes involve contradictory operations, trade crossing can sometime be done. Crossing orders involve moving shares and cash between internal accounts, and then potentially publishing the resulting "trade" to the listing exchange. Aggregate orders, on the other hand, are traded together. The details of which accounts are participating in the market order are sometime divulged with the trade (OTC Trading) or post-execution (thru FIX and/or through the settlement process.)
In some circumstances, such as equities in the United States, an average price for the aggregate market order can be applied to all of the shares allocated to the individual accounts which participated in the aggregate market order. In other circumstances, such as Futures or Brazilian markets, each account must be allocated specific prices which at which the market order executed. Because the decision about which account received which price coming out of the aggregate market order, trade allocation is a regulated and scrutinized post-trade process.
An additional wrinkle to the trade allocation process is that aggregate market order may not be fully satisfied. If, for example, a limit order is used to control slippage, then it may take weeks to fully implement a discretionary asset allocation change. This adds a participation fairness issue in trade allocation in addition to price fairness. The two aspect are compound since the market may move against your position under the pressure of your large pending aggregate market order (even if implemented as a dark-pool Program Trade.)
Some order management systems go a step further in their trade allocation process by providing taxlot assignment. Because investment managers are graded on unrealized profit & loss, but the investor needs to pay capital gains on realized profit & loss; it is often beneficial for the investor that the exact share/contract uses in a closing trade be carefully chosen. For example, selling older shares rather than newly acquired shares may reduce the effective tax rate. Because this information does not need to be finalized until capital gains are to be paid or until taxes are to be filed, OMS taxlot assignments are considered usually tentative. The taxlot assignments remade or recorded within the Accounting System are consider definitive.
- Vrtanoski, Jordan (2011). Order Handling in Convergent Environments. 2011 2nd International Conference on e-Education, e-Business, e-Management and E-Learning (IC4E 2011). pp. 378–382.
- Van Leeuwen, Matthys (2009). Managing Multi-Channel Orders with OrderCore - Enabling a Customer Focus in Order Fulfillment. Lulu. pp. 34–41. ISBN 978-0-557-03968-5.
- ATMonitor, In Search of True Multi-Asset Order Management Systems, atmonitor.co.uk, May , 2010