One global brokerage is doubling down on its global execution business.
Doubling down is one of the most thrilling moves in blackjack. It allows you to double your bet in the middle of a hand in exchange for one extra card. It's a risky gamble, as it usually ends one’s betting - if you receive a particularly low second card you can't hit again. But if the right card is dealt, it can significantly increase the chance of winning and making money.
Societe Generale has made a strategic business decision to double down and invest in its Global Execution Services (GES) unit in the US. GES globally focuses on electronic futures, options and equities, which see orders come in via DMA, FIX or FIX via algo trading, etc. And starting last year, the firm has been discussing and working closely with its electronic FX team, and electronic reach teams as well. Increasing its investment in people and technology. the firm looks to catapult its GES unit and help more client meet their respective investment and trading goals.
Recently, Morgan Downey, Head of Distribution for GES, sat down with Traders Magazine’s editor John D’Antona Jr. and discussed the state of the firm’s business. To hear Downey tell it, over the past few years, GES, which provides cross-asset trading and execution services for institutional traders, broker-dealers, and hedge fund managers, has poured resources into hiring and innovation.
Downey told Traders Magazine the strategic changes employed so far have contributed to GES’ 20% year-over-year increase in notional volumes traded. These include technological developments like NOVA, a proprietary, in-house algo solution that allows GES to offer lower latency and greater algo customization to clients based on their specific execution needs.
TRADERS MAGAZINE: So, what is going on within the GES group? And what is the GES goal?
Morgan Downey: GES is the agency listed trading arm of Societe Generale , which includes a heavy focus on electronic trading. In fact, that has been one of the primary reasons for the merging of derivatives and equity staff, bringing high and low touch desks together. In the Americas, we’ve seen a dramatic decrease in receiving orders over the phone - almost everything nowadays is coming in via FIX electronic trading platforms.
Our goal – provide client coverage and solutions. I think we hear these phrases a lot these days, but we’re really focused on that message. Markets continue to evolve, with new market centers, regulatory burdens, different liquidity profiles, new participants, and even decreasing participants (particularly in the futures space). With all that, clients have questions, and want to hear from us what we’re evaluating and how we can help.
And with what we’re seeing on the buy side – the merging of different asset class trading teams, sometimes into just one desk – we feel clients are looking for a consultative approach in terms of questions about trading tools and specialized or new products. We’ve seen our agency team become more of a conduit to the rest of the bank, acting as a liaison to our Prime Brokerage, FX, Swaps Desk, etc. That to us is part of the evolving client coverage, and a real breaking down of silos.
TM: Can you give us a look at how the unit has evolved?
Downey: Let’s start with Societe Generale acquisition of 100% of the derivatives broker Newedge in 2014. Looking back over the last five years, the electronic equity and the program trading groups at Societe Generale came together, which we branded Global Execution Services, or GES. When SocGen acquired Newedge, we saw the addition of the futures and options desks into GES, which included both the electronic futures and high touch (i.e. voice execution) teams.
Last year we saw the addition of ETF trading into our group – again, a very electronic focused group, particularly in the evolution of RFQs there. Finally, we saw the merger of high-touch equity trading into GES as well. A main driver for that was that we saw over 85% of the orders that we were getting in high-touch equities in the Americas coming in via FIX to our clients. So, it just made sense from a resourcing and IT perspective to come together.
TM: Is there a driving force behind the merging?
Downey: Yes. It’s because we’re seeing many clients - not all clients though - breaking down the bifurcation between high- and low-touch trading, with many of them having a mandate to do some sort of trading electronically. It really just depends on the asset class, the percentage that they are mandated to do, or what they are comfortable doing. With that, you see clients using more 3rd party, multi-asset trading applications, particularly on the asset management side, to send both their DMA and Algos orders, as well as their Care orders (or high touch orders being routed to our sales traders via FIX).
We just thought it made sense to put all the teams together given the evolving structure of the buy side desks and backbone of a FIX infrastructure.
TM: How many traders do you have within the GES group?
Downey: In the Americas, we're about 50 people or so across New York, Chicago and Canada. That number also includes our algo quants, which we think is pretty unique - they're right on the trading desk, not in IT or in another department. So, they're available not only to develop algorithms but speak to our clients on nuances that they're looking for in customization.
Globally, noting we are a European bank, we have about 150 sales and trading experts in cities such as Paris, London, Geneva, Frankfurt, Singapore, Hong Kong, Tokyo and Sydney, as well as Korea and India. This gives us an edge in global markets expertise and access.
TM: Do you develop all your algorithms in-house? Or are some ‘white labeled?’
Downey: All Equity and Futures algo development is done internally here at SocGen and that's always been the way it has been.
When we acquired Newedge, we were able to add Futures algos that were developed in-house with an over 10-year track record. We have a real edge here because we’re one of the few major FCMs (Futures Broker) that can offer trade-by-trade TCA on those orders, which is fairly common in the equity world but often over looked in Futures.
We look at algorithm development as one of our bread and butter businesses which is why we developed our algos in-house. Again, the quants themselves sit in the front office within our group. Having the quants in our team, being able to speak directly to clients and develop a direct feedback loop, we find that to be very important.
TM: So, the quants can custom tailor or alter an algo right on the desk?
Downey: For us, the customization is very important. We've made some big strides in the last three years by targeting and winning mandates with some of the larger asset managers and hedge funds out there saying you may not be able to get a customization anymore from a big, bulge bracket American or European bank, but here at Societe Generale, we'll sit and partner with you on a new algo or a specific customization that you may be looking for. And we've really seen that take up in the listed futures space.
TM: What a few of your top line goals are for this year in terms of GES?
Downey: There’s a couple of things. Over all, I think the theme of SocGen is to expand and grow our client footprint globally. With headlines that some of the European banks have been pulling back their offering, specifically in Asia and the Americas, this has created an opportunity for us to step in and fill the void of a top-tier European counterparty – specifically in electronic trading and prime brokerage. With SocGen’s credit and global brand behind us, clients have been very receptive to our message.
We've also got more algorithm customization coming down the pipe. In fact, we launched a few new algos, starting in Q3 of last year, that were developed with the feedback of our clients because they saw a niche in the market that wasn't being filled. And we think that's going to be our area to grow in 2019 as well.
TM: Can you share with us some of these new algos?
Downey: We’re building and tweaking algos that target market and product closes, specifically in listed derivatives. We’ve seen an increased demand for more market reactive Futures algos, which led us to launch Pivot in 2018. Pivot allows a client to give us their order instruction but also gives us the ability to automatically participate more passively or aggressively, depending on how the market moves. The buy-side user leaves it up to SocGen's quant DNA to take hold of that algo and the decision-making process itself.
