Societe Generale is bolstering its cleared OTC services with the addition of portfolio margining from CME Group, which enables clients to treat cleared interest rate swap contracts and exchange traded futures contracts as a single portfolio, resulting in reduced margins.
"In addition to the proprietary cross-asset portfolio margining program that we offer customers, we also offer the CME portfolio margining program which allows customers to offset their futures and their interest rate swaps margin requirements," Nicholas Gionfriddo, Americas Head of OTC clearing sales for Societe Generale Prime Services, told Markets Media.
At CME Group, a single portfolio of cleared IRS and futures contracts is created by booking a client's listed futures contracts to their IRS LSOC account. Societe Generale has implemented CME Group's Optimizer toolkit to facilitate the portfolio margin process for clients in order to allow them to realize these margin efficiencies, with no additional fees charged for the service.
"We continue to offer the most capital efficient clearing solution out there and are pleased to work with a leading European bank to expand this offering," said Sunil Cutinho, president of CME Clearing, in a statement.
SocGen has also established a clearing service for non-deliverable forwards, which was initially motivated by the likelihood that NDFs would be made mandatory for clearing under the Dodd-Frank Act.
"The demand has migrated away from whether or not the product is going to be mandated for clearing," said Gionfriddo. "At first that was definitely the main factor, with customers readying themselves in case the regulators decide to make this a product mandatory for clearing. Now, customers have found other reasons as to why they wanted to clear these products."
Nicholas Gionfriddo, SocGen
One of these reasons is to gain capital efficiencies. "Adding this into our portfolio margining process and margining platform allows our clients to achieve margin and risk/loss debits against their portfolio by clearing these products."
Another equally important reason is valuation simplicity. In the market right now, a customer might be dealing with a dozen or so other counterparties, each with a slightly different way in which they value and mark to market that position. "That goes away with the central clearing model," Gionfriddo said. "Because of the fact that the CCP uses a single valuation model that is completely transparent there is never a question in terms of what the value of that position is, either for the client or for the person on the other side of that trade."
A third reason is operational risk and overhead reduction "because what you have here with our platform is a highly automated, straight through, low-touch type of process, like you would normally get with any other type of cleared product like futures or any of our cleared rates or credit products," Gionfriddo said. "So it reduces the operational risk as well as the operational overhead required to process the trade."
Gionfriddo, who joined SocGen in December as its point person for cleared products, held similar roles at CME and UBS, the latter of which involved both futures and OTC clearing. "My career has been pretty concentrated within the cleared derivative space," he said.
The cleared NDF service is intended to enhance to Scene's overall prime services offering, as well as to boost its capital efficiency. "By expanding our cross asset portfolio margining platform to incorporate NDF clearing, customers who clear NDFs with us who are also doing business across our FCM and prime brokerage models are able to incorporate the cleared NDF product into their overall portfolio margining solution, which helps them as well as allowing us to use capital more efficiently," said Gionfriddo.
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