When it comes to equity derivatives in Asia, content is king. Societe Generale (SG) stood out from the crowd this year by developing unique twists on popular products that both delighted investors and helped the issuer diversify its own risk profile.
“It’s not just about having the right product – it’s also about making sure we deliver the product in the right way to our clients. So maintaining excellent systems, platforms and connectivity, that is really our day-to-day at SG,” says Jerome Niddam, the bank’s head of financial engineering, global markets, Asia-Pacific.
SG has perfected its equity derivatives platform in recent years and lived up to its promise to become a true structured products ‘factory’ in Asia-Pacific. Buoyed by favourable market conditions, in 2016 the firm booked twice as many trades and raised double the notional on equity and fund-linked structured products as 2015.
Critical to its success has been the integration of its sales and financial engineering teams, which work hand-in-glove to meet the needs of distributor clients. Assisted by the digital function, which oversees the automation of pricing requests and trade documentation, these teams handle the issuing and hedging of SG’s core products: autocallables; knock-in, knock-out (kiko) options; and equity-linked notes.
Elsewhere, the flow strategy and solutions team builds innovative risk-transfer trades marketed to sophisticated buy-side firms to offset the risks accumulated through these retail sales, allowing the firm to expand its inventory and continually service distributor demand.
“The flow strategy and solutions team delivered on their full potential in 2016,” says Xavier Cahierre, head of cross-asset sales, global markets, Asia-Pacific at SG. “In all asset classes, they have become more and more relevant as when it comes to risk transfer they are able to scale up business quickly,” he adds.
This organisational structure has reaped dividends. One member of the judging panel remarked on SG’s “strong determination to develop structured products” as evidenced by its focus on client relationship-building and investment in talent.
While maintaining its position as a regional powerhouse in the traditional autocallables market, SG has also sought to disrupt the status quo with its new glider note: a product that offers investor upside not only in rising markets, but in static and declining ones too.
A standard autocallable will knock out on predetermined observation dates if the referenced index breaches an upside barrier – typically around 100–110% of the level observed the day the product is sold. The glider note, on the other hand, will redeem early with a bonus payment if on such a date the index is observed above the glider autocall barrier, which may be as low as 65% of the initial index level.
“Certain clients were concerned that rising markets couldn’t be sustained and that autocallables sold to them would not knock out if there was a correction. We designed the glider notes for the anticipated range bound market. These were a big success in Korea and we’ve also distributed them though our private banking channel in other regions,” Niddam says.
Not only have the glider notes revitalised the autocallable market, they have also helped hedge SG’s concentrated exposure to the vanilla retail product.
“It’s a diversifying product because its duration is different from a typical autocallable and it smooths the sensitivity of our book across a variety of maturities and strikes,” Niddam explains.
The issuer has also brought its brand of innovation to other popular products. In Japan, SG traded three kiko variants to entice investors: a memory product that redeems upon a series of underlyings breaching certain knock-out levels at any point in the option’s term; a restrike variant that increases the opportunity of knock-out; and a timer version that knocks in if the underlying ranges at a certain level below the knock-in barrier for a preset period of time.
In the competitive market for risk premia strategies, sold to institutional investors, SG has been innovative. The firm now boasts 1,500 indexes with €33 billion ($39 billion) of nominal linked to their performance.
Product and platform innovations may have originated in-house, but SG has also partnered with others to shake up the market for equity-linked structured products. While it boasts a vaunted in-house equity research team, the firm jumped at the opportunity this year to extend its readership.
Hence the December 2016 tie-up with fintech company Smartkarma – an online platform that aggregates research from the world’s premier analysts for distribution among institutional investors.
“It is particularly challenging to be relevant across the region given local specificities and the numerous markets. That’s why we decided to partner with Smartkarma in Asia,” says Niddam.