Societe Generale Luxembourg Improves Its Equities Execution With Automated Solution
Societe Generale Luxembourg, a leading multi-expertise bank, has put in place a solution that automatically executes small cash equities orders directly with counterparties. By doing so, the bank can improve its execution process through minimizing market impact and increasing the likelihood of execution. Selecting Optiver as one of its trading partners also enables it to access Optiver's proprietary liquidity.
BACKGROUND
As the country’s oldest foreign banking institution, the SG Luxembourg trading room is constantly active on behalf of clients including companies, asset managers and private individuals. In this way, it aims to deliver unique investment advice, coverage and execution solutions designed to meet their clients’ varied investment objectives.
SG Luxembourg historically traded small cash equities orders on exchanges and other venues via banks and brokers. While trading on venue has many advantages, it can also carry market impact and add costs for investors. Orders trading on the book can move prices, which creates slippage between the order arrival price and its executed price.
Solutions were sought to improve its venue executions, especially by attempting to limit the market impact. The bank was already active on trading venues known as Request-for-Quote (RFQ) platforms: they allow buyers and sellers to request quotes from multiple parties simultaneously and to execute bilateral transactions. Among other uses, SG Luxembourg utilized RFQ platforms to trade exchange-traded funds (ETFs) directly with counterparties including Optiver.
INNOVATION
In order to improve its processes, SG Luxembourg devised a new automated way of trading cash equities. Trades that meet the bank’s internal criteria are automatically executed with counterparties such as Optiver. This trading solution provides several benefits for SG Luxembourg. On the one hand, the bank can get direct access to Optiver Group’s global €25 billion+ proprietary liquidity. Optiver can also offer experience built from a 35+ year track record of making markets in equities and products such as ETFs and derivatives. On the other hand, slippage is eliminated through bilateral trading.
In August 2021, SG Luxembourg initiated its first cash equities trade directly with Optiver. Fast forward six months, and the bank has put in place a solution where it automatically executes all trades that meet certain internal criteria with counterparties such as Optiver against a risk price.
When we traded on exchange, we traded through brokers with algorithms, and now we are connecting directly to Optiver, helping us to reduce market impact and increase speed of execution
says Matthieu Chomez, execution dealer at SG Luxembourg. “It’s part of a major change in the market structure, which is the direct connection of the buyside to the market maker.”
From Optiver’s side, the arrangement is beneficial as it reduces the probability of adverse selection by allowing the firm to trade directly with stable liquidity.
"By trading directly with Optiver, SG Luxembourg is able to get fine-tuned access to our liquidity," says Jean-Marie Tine, head of delta-one institutional trading at Optiver.
With the liquidity and competitive prices we can provide, we're allowing SG Luxembourg as well as other buy-side trading desks to improve on their execution.