When it comes to choosing a platform for structuring and trading, competitive pricing is a necessary criterion, but it is not enough on its own. Although investors’ main goal – the search for yield in a low interest rate environment – has been constant for the past few years, how they achieve it is changing. Investors increasingly want products tailored to their needs and market views, while private banks and other issuers need more flexibility and autonomy to create such customised products.
Societe Generale’s SG Markets Structured Products platform has been well prepared for these evolving requirements.
“It will always be the case that we have to be competitive in the returns that we are able to offer to end-investors for the products our clients are creating,” says David Wood, global head of e-business for equity derivatives and distribution and solutions sales at Societe Generale. “However, differentiating a platform only on price will never be a successful business strategy. Where we have focused attention is on the ergonomics of our platform. Our experience is that if you make things simple and easy to use, people will come.”
A case in point is autocallables. These remain popular products with end-users, who want versions that are more tailored to their outlook or preferences than they have been traditionally. A common solution is to use three or more themed stocks, such as technology companies or global telcos, in a worst-of basket. “Our clients, on behalf of the investors, have been able to mix and match the different underlyings to give the investors exposure to the companies they want,” says Wood.
Meanwhile, many private bank clients have constraints on their investments set by their in-house research. The SG platform enables them to implement these views by only allowing the selection of underlyings that are on the in-house buy or hold lists.
Creating a product and getting a price is just the first step for a private bank. It must then be able to communicate to the investor what the price means. The SG platform aids this process by generating a term sheet for every quote it makes.
“Our clients use the automated term sheet as a way of validating the price, but also to communicate the terms of the product to their investors,” says Wood.
We enabled our clients to experiment with structuring and pricing… This is enabling them to learn and build up confidenceDavid Wood, Societe Generale
Once the investor has approved the product, and after the client trades it, the platform generates an ISIN standard identifier.
“The investor then has a brand-new security in their portfolio that is bespoke to them, and they are able to see it issued into the market through the clearing systems,” says Wood. “The entire process is fully automated, with the product flowing straight through all the various market infrastructure systems and into the private bank’s back-office systems.”
Although these capabilities have been part of the SG platform for a while, the bank is continually enhancing them. In recent months, it has added support for issuing products in South African rand, as well as extending the periods during which investors can autocall to monthly, and adding straight-through processing for the Swiss market via the Six Financial Information platform. Where clients previously had to request prices for variations of a product singly and wait for the first before submitting another, the bank has added the ability to request multiple prices simultaneously. It is also using the statistical data it gathers on how clients use the platform to make more fine-grained improvements to its usability.
“In the back of our platform, we have a lot of information and data – which we gather anonymously – about how clients or users navigate through its pages, and we are able to use this to adjust the ergonomics of the system. And because we make the platform simpler to use, people use it more frequently,” says Wood.
One area in which Societe Generale recently identified the potential to differentiate itself was its support for credit-linked products. “We have strong capabilities in our financial engineering and structuring departments, particularly on the credit side,” he says.
The bank noticed that while its clients were happy to do price discovery and explore variations in equities products, they did not seem to use the same self-service approach with credit-linked products.
“We therefore enabled our clients to experiment with structuring and pricing and being able to explore the dynamics of credit-linked products for themselves,” says Wood. “This is enabling them to learn and build up confidence.”
The bank’s efforts have paid off. It has seen a 30% increase in requests for quotes and a 64% increase in trades on the platform compared with 2016. As well as praising its features and usability, the judges commended Societe Generale for the robustness and reliability of the platform, its large product range and its universe of underlyings. Clients are also very positive about the service it delivers.
One product manager for investment solutions at a German bank commented: “What I like most about SG Markets Structured Products is its versatility – I can price almost every payoff profile I need and it allows me to customise the structures in great detail without the user interface looking overloaded or confusing.”