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Societe Generale’s OTC Clearing Group

Hedge funds blaze trail to OTC clearing

The clearing mandate arrived earlier (2013) in the US than in Europe (2016), but “hedge funds everywhere have been early adopters of clearing for reasons such as operational efficiency, margin efficiency, compression and treatment of credit lines” says Jamie Gavin, Head of EMEA and APAC OTC Clearing at Societe Generale. So hedge funds, already familiar with margining, went live well before the ‘category one’ deadline in Europe (category 2 applies from December 2016, and category 3 from 2017, and clearing for some smaller counterparties may be delayed until 2019, ESMA proposes). Societe Generale’s OTC clearing group mainly deals with financial counterparties, as non-financial counterparties start later or are exempt from clearing requirements.

OTC clearing dovetails well with the multi-asset class, cross-asset class margining approach that Societe Generale Prime Services (SGPS), which received The Hedge Fund Journal’s 2015 award for ‘Best Global Multi Asset Prime Brokerage’, is renowned for. SGPS operates a holistic, multiasset class, margining model whereby all portfolio exposures are netted out. FX Prime brokerage, interest rate swaps, and repos, for instance, all feed into the risk model. Capital efficiency appeals to banks as well as clients: “cleared OTC is less intensive from a margining perspective relative to the upcoming required uncleared initial margin requirements, partly because it uses 5 to 7 day MPOR, rather than 10 day, margining” says David Marcus, Americas Head of OTC Clearing at Societe Generale, who recently joined Societe Generale from Deutsche Bank. SGPS is working with “some household name hedge funds trading very high volumes in the relative value space, who appreciate our low touch operational environment and benefit from cross-asset servicing and financing” he adds.

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INFORMING THE HEDGE FUND COMMUNITY With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.