SocGen creates in-house derivatives algo-trading platform
Société Générale has developed in-house algorithmic derivatives-trading bolt ons for its execution platform. The French bank says the new technology will speed the execution process and comes in response to a changing regulatory environment. SocGen, which uses an outsourced execution system, says it chose to create bespoke software for over-the-counter derivatives trading to give the bank an edge over its competitors. "We prefer to focus on the part of the system where we bring something special”, said Frank Drouet, head of global markets.

Societe Generale is planning to enhance its electronic execution capabilities by bolstering its use of algorithmic trading technology.

The move from the French bank reflects the general shift of trading derivatives and other asset classes electronically as a result of regulation.

Speaking to The TRADE Frank Drouet, head of global markets, Societe Generale, explained: “Outside of direct market access, there is the development of new tools for clients in terms of execution of their orders. We are developing new algorithms that can be plugged into our main execution offering, which brings added value for clients.”

Banks are all taking different routes to meet these technological developments. Many have begun implementing changes to their front-office trading platforms over the past two to three years, with Barclays, BNP Paribas, Citi and RBC all opting for vendor-based solutions. Other banks have gone for the homegrown in-house platform, such as Goldman Sachs, Morgan Stanley and JP Morgan.

Recently JP Morgan’s chief executive of its corporate and investment banking division, Daniel Pinto, said changes in market structure could see a potential $5.5 billion in revenue move to electronic execution.

Societe Generale has taken the stance that a solution which combines both in- and out-sourcing solutions. It has had plenty of experience of maintaining its own in-house software, particularly for equity derivatives trading.

“Our view is to have an execution platform backbone which could come from vendors, but this platform should be open enough for us to plug in models that add value to our clients,” Drouet added. “For example we are bringing algos for execution, and we want to have a system where we can apply this. So, we would like a platform which combines vendor solutions with tailor-made add-ons.

“For OTC exotic derivatives we have developed in-house software. For execution we can use vendor systems because we prefer to focus on the part of the system where we bring something special.”

Drouet said enhancing its technological capabilities will be one of the main deciding factors for potential clients, as banks look for new ways to differentiate themselves with competitors.

“Technology will be part of the differentiating factor because clients value the quality of the service, and if you have a very strong STP solution from dealing to clearing to confirmation, that will add value not only for listed products but also for OTC derivatives,” he said.

“A client will appreciate a solution where cross-margining occurs across different products and different types of complexity. It’s all about the added value you can bring to clients.”

For the full article with Societe Generale’s Frank Drouet, look out for the latest issue of The TRADE Derivatives.