A Broker-Neutral Approach to EMSs
While BlackRock is seeking to standardize on Aladdin, however, it does take a broker-neutral approach to execution management systems and relies on various third-party EMSs and broker algorithms. BGI's trading room also has multiple front-end systems, including a proprietary order management system for equities, fixed income and foreign exchange, and the FlexTrade EMS for equities and FX, according to published reports.
"We're agnostic to EMSs -- if it's Portware's or FlexTrade's or REDIPlus' or ITG's offering, we're agnostic to those EMSs," says Fortin. "We will not be focused on building proprietary algorithms or anything of that sort," he adds of BlackRock's expansion of Aladdin into equities trading. Instead, he indicates, BlackRock will look to support various EMSs and potentially even integrate broker algorithms into the platform natively, as other trading platforms have done.
Fortin says the new equity functionality would be integrated into Aladdin such that the portfolio manager creates the order, checks the compliance rules and hands it off to the trader in the OMS. At that point, the trader would direct the order to an EMS or directly to a broker. "We view all the EMSs as another destination," Fortin explains. "[Traders] may send all the orders to the EMS or pick and choose their specific brokers as destinations. But Aladdin is the first stop for the order before it's parsed out to the EMS or direct broker connectivity."
Aite Group senior analyst Denise Valentine predicts that BlackRock will allow portfolio managers and traders to use their multiple front ends, but on the back end all of these engines would feed the Aladdin enterprise system for a consolidated view of risk. "Sometimes people have multiple front ends -- they'll have a system that's dedicated to options or to credit derivatives," says Valentine. "People adhere to certain systems. You try to make your portfolio managers as comfortable as possible. But when you are looking across the firm and across the portfolios, it can be difficult without a common platform to roll up, to slice and dice, and to evaluate where the organization is as a whole."
Adds Valentine, "The notion of creating a single platform is valid particularly as you get larger and more diversified and more geographically disparate. That allows the management to know across the company where we stand."
Supporting a Massive Processing Load
While analysts expect BlackRock to apply its organizational discipline and penchant for cost-efficiency to the integration of the firms' trading operations, from a transaction processing standpoint the challenge is enormous. TABB's Berke points out that BGI has made a significant investment in its own proprietary trading, including its own algorithms and transaction cost analysis. "They have billions of terabytes of data from their own transactions that they are no doubt using to develop their own proprietary trading strategies," she says.
On the BlackRock side of the data center, the firm has a 3,000-server compute farm that crunches risk calculations overnight. And the firm doesn't rely solely on the computers, according to BlackRock's Fortin. The investment manager also has a quality-control team that checks the numbers. When portfolio managers at BlackRock and outside clients come to work in the morning, "They don't have to spend the first three hours wondering if the numbers are right," Fortin asserts.
While some observers may wonder how BlackRock will marry such enormous operations, according to TABB's Berke BlackRock's systematic, enterprisewide approach to portfolio management, trading and risk management should ensure a successful integration. "They were so efficiency-oriented and so good at it that they created a business around it," notes Berke, referring to BlackRock Solutions. "You marry that [efficiency] with BGI and you go forward into the trading room and you have an organization that is extremely cost-efficient and automated on the trading side."