Societe Generale has created an impressive offering by integrating Newedge’s agency business with its traditional strengths in equities and equity derivatives
What is new with Societe Generale’s Prime Services, Securities Finance and Delta One Services?
Gregoire Thomas: SG invested heavily and dedicated resources in fully acquiring and integrating Prime Services from Newedge. The result is a prime brokerage proposition that offers truly agile solutions through a single platform. Our platform is cross asset and able to cross margin a comprehensive range of physical and synthetic instruments.
We have a global offering across execution, financing, clearing and capital introduction. More importantly, we’ve adopted a holistic approach to balance sheet allocation – at a time when capacity is contracting elsewhere in the industry, we are fully committed to the development of our prime brokerage business and are eagerly onboarding and welcoming new suitable clients. We have combined the best of the agency business from Newedge with Societe Generale’s well-recognised equities and equity derivatives business and its strong balance sheet capacity to warehouse risks. This translates into a strong finance and derivatives offering, with sizeable and stable inventory that includes hard-to-borrow securities. Our ample liquidity allows us to onboard new clients and offer them services including securities lending and borrowing, repos and reverse repos, swaps, futures and P-Notes.
We offer competitive risk prices for large blocks on a vast range of underlyings by leveraging our index replication and trading capacity. And as one of the largest execution and clearing brokers of listed derivatives in the world – with a 11% market share in 2015 (Source: Societe Generale) – we provide DMA access to over 125 market participants and exchange venues including a fully integrated quantitative algo offering with bespoke capabilities and enhanced performance.
We have a highly sophisticated clearing collateral management team dedicated to managing our clients’ margin and collateral. They are central to all client-related activities in the listed space and offer a suite of services including collateral transformation, CCP margin management, segregation management and regulatory reporting.
Can you tell us more about SG’s business set up for Securities Finance and Delta One in Asia?
Ariel Winiger: We have integrated all the delta one businesses including short-term securities financing and collateral trading (up to 18-month tenor) into one team. This setup allows us to coordinate client flows efficiently between various products and markets. It also strengthens our pricing capacity when we handle the flows across the listed and OTC markets, manage the inventory and financing needs holistically, and coordinate scarce resources and profitability calculations driven by the various businesses and clients effectively.
We have a dedicated team of Securities Finance and Delta One traders, sales traders and sales professionals in Asia Pacific to execute, price and structure client trades. Internally, we also have a transversal financial engineering team that takes care of non standard client requests or structures.
Can you give us an example of a trade where coordination between the various business lines was required?
Ariel Winiger: Yes, a pension fund client contacted us last year with a customised global basket strategy they wanted to wrap in an index. After our quantitative research teams helped to define the client’s stock picking criteria the financial engineering team set up the index through an index provider. The trading team also carried out a thorough examination of the constituents’ liquidity and the financing of the long as well as the coverage of the short positions for the committed term.
Local and regional sales were in close dialogue with the client to make sure we delivered according to their expectations. We also made some slight adjustments to our IT system to cater to the client’s specific needs in reporting and execution connectivity and successfully rolled out the solution on time. Our global coordination from front to back, across three regions (Asia, Europe and the US), demonstrated true team spirit which helped us deliver the right results.
How do clients benefit from SG’s Prime Services, Securities Finance and Delta One offering?
Wayne Edelist: Clients are telling us more and more that the reason they work with SG is our ability to cope with complexity. Whether it is across markets and time zones, or structuring a product within a client’s required framework, our roots in structured products, derivatives and our DNA in financial engineering make us stand out in the market.
We are growing our reputation in the market for our capabilities to replicate nearly any index a client asks for – from small caps in very small countries to cherry-picking certain sectors in benchmark Asia Pacific indices. This applies to both the long and short sides as our depth of inventory allows us to cover clients’ shorts at attractive rates.
A clear differentiator is our ability to finance more difficult assets. From non-rated convertible bonds to ETFs, we have the balance sheet, risk knowledge and expertise to deal in significant sizes.
Our flow strategy and solutions team develop tactical delta one and derivative research trading ideas and is well-regarded on the street. They offer innovative baskets based on emerging themes which meet the needs of customers. For example, the team came up with ideas to take advantage of the concern over Chinese debt, identify quality income dividend stocks, short sell tired buybacks and to profit from our strategist Albert Edwards’ hypothesis that deflation will be spread around the globe as central banks lose their ability to control the economic cycle.
Bringing our leadership in futures, options and clearing into delta one, we often let clients initiate and maintain their exposure at midmarket levels by leveraging our sophisticated tools that select the most advantageous instrument – for example ETFs, cash baskets, futures or swaps – in real time to buy or sell at a given moment.
How does the Index and ETF business tie in with Prime Services and securities finance?
Eric Jungers: Index replication and ETF management are fully integrated into securities finance, delta one and Prime Services, which helps our clients in two main areas – index tracking and yield generation.
We provide access to a large number of indices worldwide thanks to the strong collaboration of the teams in Asia, Europe and the Americas. The Index and ETF team is globally backed by robust internal trading and risk management systems especially designed for this activity. Therefore we can easily track a worldwide index, a local small-cap index, with embedded features such as leverage, a currency hedge or customised indices.
A deep understanding of equity indices coupled with our longstanding collaboration with Lyxor make us a natural player in the ETF space. We help asset managers to replicate their tracking needs and offer market-making services on a large number of ETFs worldwide including creation/redemption, agency execution and risk pricing. Working with the financing team allows us to offer fully integrated solutions to asset managers, which include tracking and collateral management.
Our other main edge is our experience in financing and re-financing a large book globally in an optimised way. Because of quantitative easing in many markets, investment returns on low risk assets are very low. At the same time, due to the impact of regulations, the cost of managing an index position is getting higher. We are thus in a position to offer a better yield to cash-rich investors in a safely collateralised structure. Such an offering would not have been possible for our clients without the integration of the financing and index replication teams.
SG is the biggest clearer of listed instruments, how does that complement its Prime Services, Securities Finance and Delta One offerings?
Matthew Hart: As one of the largest execution and clearing brokers of listed derivatives in the world and an award-winning derivatives house, we have the credibility and natural opportunity to talk to clients about our wider Prime Services, Securities Finance and Delta One offerings and to explain where we can add further value.
For example, our CTA and macro fund clients are very familiar with our listed futures and options offering and cross margining capabilities, which gives us the credentials when talking to prospective equity hedge funds. Similarly, we have been operating as a ‘prime broker’s prime broker’ by successfully providing them with bespoke products and refinancing solutions.
This is a reflection that we are well attuned to our hedge fund clients’ potential needs and challenges. Enhancing this capability is a natural alignment and collaboration of the various sales teams under Prime Services at SG. We are well placed to pivot our discussions with clients towards their varying requirements. A key benefit of this is a more considered approach to pricing and the understanding of our clients’ needs across the firm.
What is your outlook for 2016 and beyond?
Gregoire Thomas: We were already a top ten prime broker according to Coalition Analytics, but now we are often competing with the big five for new mandates. It’s encouraging to see that our business is scalable now and will grow for the foreseeable future. Asia Pacific is key to this growth as we are further investing and delivering our brand new platform in the region.
Ariel Winiger: Adding to that, I would say that the next couple of years will be challenging but also very interesting to see how the various players in this market will cope with the changing environment. Where there are challenges, there are opportunities. I believe our firm is well placed to prosper in this business going forward.
This article appeared in Global Investor/ISF's Securities Finance Asia Pacific Guide for 2016.