PIP service
PIP stands for " P rice I m p rovement Service", a service that is used for the processing of over-the-counter commission business ( securities transactions ) at banks.
Features of the PIP service
The PIP service is offered by various banks and denotes an over-the-counter conclusion of buy and sell transactions in exchange-traded securities.
As part of the PIP service, the customer has the option of buying or selling an exchange-traded security directly from the bank. Since this purchase / sale is not a stock exchange trade but a commission business, the deal does not lead to a stock exchange price. The bank determines the price. This will base its price offer on a reference price (stock exchange price) and will endeavor to undercut this (or to outbid it in the event of a customer sale - benchmark principle). In essence, PIP service is about bringing about a price improvement for the customer. The price set by the bank is billed to the customer along with a (mostly reduced) fee.
The PIP service is only offered for a certain selection of securities ( investment universe or PIP securities). The achievable price improvement therefore depends on the market conditions (bid / ask spread, supply / demand).
- Example A:
- Purchase cheapest 100 stocks via PIP service
- Bid / ask spread at the stock exchange: EUR 60 to EUR 60.50
- PIP version: EUR 60.30
- Example B:
- Purchase cheapest 100 stocks via PIP service
- Bid / ask spread on the stock exchange: EUR 60.50 to EUR 60.51
- PIP version: EUR 60.51
The PIP execution price always refers to the underlying stock exchange. The price improvement should take effect here. Regardless of this, the price improvement cannot be granted under all circumstances, but at least one execution for the money is guaranteed. Ask price of the reference stock exchange.
Possible stock exchanges
When choosing the reference exchange, the following types of exchange are generally considered:
1. Stock exchanges with closed order book and price taxes
These only publish the last price that came about (last stock exchange price) as well as current price taxes with bid and ask prices. Depth of market, i.e. H. the number of items offered or requested cannot be called up. If the purchase or sale commissioned by the customer exceeds the number of items traded, orders can be split (partial execution).
2. Stock exchanges with an open order book
In contrast to the first-mentioned stock exchanges, there is an open order book, including the offered / requested shares and other information. Due to the transparency created, a more precise (weighted) determination of the price is also possible within the framework of the PIP service.
- Example:
- Buy the cheapest 800 Z shares in the PIP service
- Offers on stock exchange X:
- 200 shares at 50.00
- 300 shares EUR 51
- 100 shares at EUR 52.00
- 400 shares at EUR 53
- PIP version: EUR 51.40
- Volume-weighted price on the stock exchange:
- (200 × 50) + (300 × 51) + (100 × 52) + (400 × 53) = 51.70
The execution of the PIP order is based on the same system and is calculated for the 800 shares at the cheapest price (in the example (200x50) + (300 * 51) + (100 * 52) + (200 * 53) = 51.375). The execution price is therefore max. 51.375. Here the customer is z. B. offered an improved price of 51.40 EUR.