Trading Rooms and Private Banking: Definition and Challenges - Expert Views
What is a trading room?
The trading room gathers all the services and staff required by authorised financial institutions to operate on the markets. It is generally arranged into "desks”, or teams that specialise in a particular product or type of client, and is the intermediary between investors and the financial markets.
The trading room provides a host of services, the most important being that it can handle an extensive range of financial products: securities (equities, bonds), currencies, listed derivatives (listed options, futures), as well as customised products (structured products, OTC derivatives)(1). It is the nerve centre of all transactions executed on the market, whether on behalf of large corporations for the investment bank, or smaller entities and private individuals for the private bank.
Making the private bank tick
All private banks require the services of a trading room, not least to execute their clients’ orders. Some private banks choose to delegate the management of their orders to outside trading desks, while others keep their desks in-house. Either way, all the bank’s client transactions transit through the trading room. This makes it all the more important to enhance best execution in terms of the speed of trades and access to competitive prices.
This is not the only challenge trading rooms face: they must develop their network of brokers and counterparties to provide as much liquidity as possible, and therefore the best possible price for each financial product; while also automating and streamlining order execution.
Other than dealing across all asset classes, trading rooms converge numerous key expertise to serve the private bank’s widely diverse clients and meet their specific needs. Certain professional clients, for example family offices(2), require specialist expertise for every asset class. They therefore require direct access to the trading room. These clients also have specific needs for structuring more complex products, such as structured products and derivatives, and accessing leverage(3) via dedicated financing. This calls for careful monitoring in terms of their risk management.
Other clients, such as financial intermediaries (FIMs), have much higher transaction volumes. They will choose to automate the transmission of their trades, which means providing tools that asset managers can use to capture trades directly, or establishing an electronic communications protocol (such as the FIX protocol(4)) between the asset manager’s portfolio management system(5) and the trading room systems. Trade flows are therefore automated, from the capture of the asset manager’s instruction, through to execution on the market and settlement on the account, without any human intervention.
Societe Generale Private Banking's expertise
Societe Generale Private Banking offers two complementary points of direct access to its trading room in Luxembourg:
- Prime Market Access caters to professionals clients(6) who are very active on the markets, such as family offices or investment professionals. It provides direct access to specialists in the trading room from 8 a.m. to 10 p.m., and provides the technical assistance and financial expertise of an investment bank, and the tailor-made support of a private bank.
- Direct Market Access caters to Financial Intermediaries (FIMs). It provides an integrated execution platform with the option of automating trade flows using solutions including the FIX protocol.
For more information on the workings of trading rooms, speak to you private bank, Societe Generale Private Banking.
(1) Derivatives are financial instruments whose price is determined by the value of the underlying financial asset. Investors use derivatives to hedge against negative fluctuations in the underlying value, or to speculate on its value. Listed derivatives are traded on regulated markets (such as stock markets) while “over-the-counter” or OTC derivatives are traded directly between two parties.
(2) A family office is a structure that oversees the financial wealth management of one or many high net-worth families. It usually provides the full spectrum of experts (portfolio managers, legal advisors, tax analysts) to successfully carry out its mission.
(3) Leverage refers to the use of debt in order to increase a structure’s investment capacity.
(4) The Financial Information eXchange (FIX) is a fast and secure electronic messaging standard developed to facilitate the exchange of information on stock market transactions. It is designed to automate communications between trading partners.
(5) A PMS or portfolio managing system is an IT infrastructure that simplifies and centralises client portfolio management.
(6) Professional clients are clients who have the requisite experience, knowledge, and skills for making their own investment decisions and adequately evaluating the risks incurred. The categorisation of a professional client as such is governed by MiFID II in accordance with specific criteria.
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