Newedge moves forward

July 11, 2014 03:42 AM
Futures Exclusive (Part 2)

This is Part 2 of Futures' exclusive interview with Newedge CEO David Escoffier.

Societe Generale recently completed its acquisition of Credit Agricole's 50% stake in Newedge bringing Societe Generale’s ownership to 100%. 

Newedge CEO David Escoffier says the transaction, besides bringing clarity to Newedge, which was needed, will create the right model going forward to be profitable in a changing world.  “It is important to present clarity,” Escoffier says in an interview with Futures.

It also is necessary to be a bank, he explains. “Now, we can connect clients to more than 125 markets. I don’t think any other firm has that type of reach. Newedge could do part of that, and now thanks to Societe Generale, we have added cash markets, the one leg of the trade that was missing before.”

He adds that being a bank will be very helpful with OTC clearing. “We are a one-stop shop.” 

This is particularly true in the post Dodd-Frank world. “Markets are about less leverage, less capital, and more transparency,” Escoffier says. “In the end, it is an agency business, what I call ‘Agency+’: a mix of agency and the ability to provide back stopped balance sheet risk taking for your key accounts. That is precisely the mission of Newedge Agency teams in Global Markets.”

Escoffier explains that Newedge’s new model brings all the large bank benefits to the table to provide more choices for its clients. “Trading financial instruments can be very complex. We serve smart, sophisticated clients who need a service provider to have the necessary technology platform and market expertise for them to invest long-term,” he says. “Previously, Newedge operated more or less as a collection of small teams. All of these small teams were working semi-independent from one another; it is much more efficient to have a functional team that can cross-sell products and services to clients.”

Newedge is now in the camp of the large bank FCMs and SocGen is massive. It is a 150-year old institution with more than 148,000 employees, based in 76 countries and has 32 million clients throughout the world.

It offers retail banking in France, International retail banking, it offers financial services and insurance with a presence in emerging economies. It offers corporate and investment banking, private banking, asset management and securities services.

It is that mountain of business services that Escoffier says Newedge can leverage into a more profitable business model.

“We want to invest, offer more financing and additional cross-margining for clients, and produce more research, so we’re committing more resources to these areas,” says Escoffier. “At the same time, we are confident in our agency business model and its relevance to clients in the new world. Name me one investment bank or big brokerage in the industry that is confident they have the right model. We are very confident.”

Moving forward

Newedge brought together two of the larger FCMs, but that size did not always work in its favor. “On one side, we have prime clearing services and prime brokerage; we also have a massive agency sales force, one of the largest in the industry,” Escoffier says. “This is our new model: the ability to serve clients with the current set of products and services, while at the same time enhancing our offer with a backbone of liquidity from the bank. Adding research and financing makes the relationship more holistic, which is what clients are telling us they want. Again, being wholly relevant to clients’ demands more than a single set of products, i.e. only futures and options. Global clients want more from the relationship, hence our new model and new proposition. It is a very exciting time.”

Escoffier explains that Newedge operated numerous silos that sometimes competed. The Credit Agricole side was big on capital introduction and not as focused on brokerage. The plan for the new entity is to have all the oars rowing in the same direction. While cap intro will remain a focus, it will be part of a larger plan. “It is something we want to expand, beyond commodity trading advisors (CTAs) and Global Macro Funds. The next step is to get into the equity space,” he says, “Being part of Societe Generale will be helpful in providing clients with a 40-Act platform, a UCITS platform and a swap platform.”

Not only does Newedge plan to offer different platform offering an array of investment vehicles, but the ability to create value for customers by offering cross margining for various assets. It is one of those benefits that is difficult to offer without a strong bank behind you. “We are in the right place where we can leverage the newest technology to do cross-asset margining,” Escoffier says. “Newedge is one of the few houses with the ability to do this fully and globally.”

Escoffier laid out an aggressive plan that included Newedge becoming a much larger player in fixed income. On the futures side he set a goal of once again becoming the #1 FCM in the United States based on customer segregated funds within five years.

The merger of Calyon and Fimat seemed to take forever as did the potential sale and eventual break-up of its owners. The merger created a huge FCM but not necessarily a profitable one. The current structure with one bank owner appears to have a sharper focus and the ability to offer more products and services.


About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.