LiquidityBook’s CRO Sean Sullivan writes about a cloudy area on Wall Street: OMS/EMS connectivity fees.
Wall Street is far more transparent today that at any point in history. But one area has remained stubbornly opaque for far too long: the transactional connectivity fees charged by some OMS and EMS vendors.
There is no question that Wall Street is a far more transparent place today than at any point in history. Generally speaking, broker-dealers are well aware of the pricing models employed by the exchanges, investment managers know how and for what their brokerage counterparties charge, and end investors can see exactly what fees they are incurring. For trading in particular, there is now a tremendous amount of data – some of it mandated by regulators, and some driven by market forces – around order routing that only a few years ago would have been nearly impossible to obtain. But even as the industry continues to laudably move forward on this score, one area has remained stubbornly opaque for far too long: the transactional connectivity fees charged by some OMS and EMS vendors.
These fees are not only non-transparent, they are also considerable. And worse yet, legacy providers often go to great lengths to make it difficult or downright impossible for the buy side to know how much their brokers are being charged.
Take the case of Voya, which recently faced a situation that illustrates this problem. According to an article last summer in the Financial Times’ FundFire, Voya was asked by Luminex, the buy-side-owned block trading utility, to discuss its commission rates after the investment manager’s OMS provider increased the fees it charges Luminex to close to 40% of the total commission. However, when Voya attempted to learn how much the vendor was charging, Luminex wasn’t able to divulge the information. Voya’s vendor, like several others, imposes strict non-disclosure agreements on its brokers that explicitly forbid them from disclosing the fee to the end buy-side client, effectively baking price opacity into the business model.
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