Landsbanki Kepler, a European investment bank operating in seven countries, has been working closely with GL TRADE, global provider of multi-asset trading software solutions for international financial institutions, to implement the bank's strategy for trading in the post-MiFID European equity market environment.
Since November 2007 the European markets have begun to fragment, driven partly by the early success of the Chi-X Multilateral Trading Facility, and this trend is expected to accelerate during 2008 as several other MTFs and Dark Pools (non-publishing block trading facilities) bring new services to market.
Landsbanki Kepler has set out an ambitious strategy for its agency brokerage business, exploiting the opportunities that the new market environment offers. Thomas Biotteau, IT Project Manager at Kepler, confirms: "We want to offer our clients the very best prices, and to achieve this we will need to optimize our trading across numerous MTFs and Dark Pools. Since April we have been sending significant order volumes to Chi-X, using GL TRADE's Smart Order Router to determine when this will deliver better pricing. The benefits for our clients have been substantial, so we are pressing ahead: we plan to start trading at several other new electronic venues when they launch their services."
GL TRADE has developed a suite of software products and services to allow trading firms to maximise the opportunities created by the post-MiFID market environment. Client firms can aggregate the price data published by multiple trading venues for a given instrument into a single European order book, and then use GL TRADE's Smart Order Router to drive decisions on how and where to place their own trades, in order to obtain the best possible results. Best Execution is the objective (and indeed the obligation) under the MiFID rules: further GL TRADE products enable brokerage firms and their clients to build and report on the audit databases that allow 'Best Ex' to be monitored.
This suite of products is in daily use at several GL TRADE client organisations, including Landsbanki Kepler. Vincent Burzynski, Managing Director for Products at GL TRADE, says: "Landsbanki Kepler has been one of the most ambitious early users of the Smart Order Router (SOR) as a key platform for its multi-venue trading strategy. Our two firms have worked closely together over a number of months, and the SOR has been fully operational at Kepler since April, supporting all trading activities on the main index constituent equities for the French, German, Dutch, Belgian and Swiss markets."
A few key points illustrate the success that Landsbanki Kepler is achieving with its smart order routing strategy:
- Sophisticated algorithms have been employed to optimize trading strategies, including continued 'sweeping' of multiple venues for price improvements after the placing of an order
- Approximately 15% of order volume on the stocks cited above is being executed away from the 'home' markets - i.e. on Chi-X at the present time
- Average price improvements of between 0.3 and 1.2 basis points (varying according to the stock and the trade volume) are being obtained for Landsbanki Kepler's clients on these 'away' orders
- The bank itself benefits from the MTF's aggressively pitched trading fees
- The Smart Order Routing system's flexible implementation allows for straightforward connection to further MTFs and Dark Pools.
Landsbanki Kepler and GL TRADE will continue to work together on the further development of the bank's multi-venue trading strategy.