Societe Generale has confirmed plans to implement a cloud-based swap trading and management system, as part of plans to boost its prime brokerage business to grab more market share in an increasingly challenging environment.
The French investment bank signed a seven-year software-as-a-service deal with Nuvo Prime to deploy the SwapScale system, which it plans to run across the prime brokerage division to combine both swap and cash prime finance onto a single integrated infrastructure.
“A unified prime services offering will deliver efficient transactional management and control, while enabling our clients to express their investment strategies across products and asset classes worldwide,” said Charlie Day, head of equity prime brokerage at Societe Generale. “Nuvo Prime’s high level of automation and intuitive workflow tools will greatly simplify our client service and middle office operations while enriching our client offering.”
Nuvo Prime’s flagship SwapScale platform operates on Amazon Web Services (AWS) in a cloud environment, allowing Societe Generale to handle vast volumes of swap business cost effectively. With larger capacity for volumes, the investment bank is looking to expand its buy-side client base with more hedge funds and asset managers.
“Our clients are looking to us to implement leading edge technology and in doing so, improve the agility, functionality and efficiency of the operations. That is the essence of our digital and innovation strategy,” added Richard Déroulède, head of prime services and clearing at Societe Generale. “Nuvo Prime’s cloud native scalable technology enables digital transformation to take place rapidly, in a controlled and cost-efficient manner. With it, we can scale up prime finance to service our clients’ needs.”
Many of the largest prime brokers have undergone major restructures in a bid to closer align the segment with their electronic trading businesses. Prime brokerage has become increasingly tied to electronic execution and considered a pathway to other products within the equities franchise such as research, equity derivatives, and synthetic financing. Last year, Citi combined its equities, prime brokerage and securities services divisions into a single unit, as it also looked to capture the increasing electronification among hedge funds.
However, amid higher costs of financing, investment technology, and operations, other major players have opted to pull of prime brokerage altogether. Deutsche Bank confirmed in July it would transition its largely US-based prime brokerage and electronic equities businesses to BNP Paribas as part of major transformation plans. At the same time, hedge fund closures have outpaced new launches at a rate of almost two-to-one.
The once-prized division of Deutsche Bank suffered in recent years after major fines cast doubt over its sustainability, spurring several high-profile hedge fund clients to pull their business from the bank. Barclays confirmed in August that it gained around $20 billion in prime balances from Deutsche Bank, while JP Morgan also reportedly took on several high-profile hedge fund clients from Deutsche Bank.
Elsewhere, prime brokers are expected to reap over $30 billion in revenues from their hedge fund clients this year in spite of new business model challenges, according to new estimates. However, the study showed that prime brokers are facing increased pressure from hedge fund clients to step-up in a number of key areas, including quality of service, pricing, margin terms, and stock borrowing.