United Kingdom: Commoditising complex products the SG CIB way

Anthony Woolley, the UK chief data officer at Société Générale Corporate & Investment Banking, sees technology making the markets safer but is keen to foster an environment in which innovation in IT solutions thrives.

The ‘equitisation’ of complex products is creating opportunities for front-office technologists. The same skills that have helped develop trading platforms for vanilla cash assets are presently finding a home in markets that used to be primarily over the counter.

“E-business continues to transform the nature of financial services,” says Anthony Woolley, UK chief data officer at Société Générale Corporate & Investment Banking (SG CIB). “It is concerned with both how you price and risk-manage financial products and how you distribute them to your clients. IT is transforming both of those aspects. Firms started to manage risk for very simple products in high volume a decade ago. But the advancing power of technology has allowed it to apply to ever additional complex products over time. So there are completely a lot of exciting projects going on at the back end of how e-business is done.”

Even in flow businesses, the environment is changing and that is impacting the use of technology. Over the completed decade, equities have moved from a relatively simple environment in Europe, to one in which liquidity is fragmented and routing orders is infinitely additional complex.

“Everything was centralised and exchange based; everyone was trying to beat a match for an order," says Mr Woolley. "Presently the equities market has become much additional over the counter or off-exchange by volume of trade. In foreign exchange the environment has always been additional complicated around how you price and risk-manage products.”

For clients and staff

Mr Woolley has two remits; oversight and delivery of world IT services that impact the London division, and managing the contribution that the London IT staff make to world delivery programmes within the bank. For both, his background in front-office foreign exchange trading systems is proving invaluable.

“One aspect of my role is about managing the control and risk environment around the world IT services delivered to the London branch of SG CIB, the other is about how we help deliver world IT services from here, which are invariably front-office and client focused,” he says.

He has reporting lines to both the SG CIB world chief of front-office technology in Paris, in client and trading technology, and again locally into the chief operating officer for the UK branch. The bank has very few UK-specific programmes; typically the almost 300-strong UK technology team contributes to world programmes or actually runs world programmes, with staff reporting into London from Paris, Hong Kong and New York. Equally, staff in London may contribute to world programmes run out of Paris. In its equity business the bank has an established relationship with Fidessa, the trading platform provider, but it strikes a balance with internal technology development.

In SG CIB’s fixed-gain flow business and structured products businesses, there is a significant % of work going on with external customers, in areas where the IT function can help businesses innovate with the evolution of their electronic trading environment.

“Often with IT, the majority difficult variable to manage is time; the pace at which it evolves, the point in time at which it is appropriate to adopt technology and at the same time as your clients are ready to consume that technology. We have national-of-the-art technology at the back end, enabling us to price and risk manage our products, but we as well want to push the envelope in terms of the quality and contemporary nature of the technology to distribute to our clients,” says Mr Woolley.

Managing regulation

There are two major pressures he cites as impacting the IT function at present. One is the evolution of the regulatory environment and the other is the evolution of technology that allows business to evolve within the context of those regulatory environments.

“There has been a stronger and deeper regulatory environment that has evolved over the completed few years and while that causes a lot of work it is a good thing,” says Mr Woolley. “We want to provide services to our clients in a strongly controlled environment. On the other side of the coin, the thing that nobody can stop is the onward march of technology, and it is technology that is transforming the nature of how financial products are made and distributed.”

There has as well been a philosophical shift. Mr Woolley believes that where banks used technology in a risk-taking capacity, presently they are using technology to enable risk reduction. An example of this is in electronic market-making, an environment in which he says SG CIB is using the evolving power of technology to reduce risk.

“[Transparency] helps in terms of the way we managed our trading flows, our client flows and our inventory across financial products,” he says. “The tougher regulatory environment is a positive thing in general for financial services and for society and I think that technology within that is still evolving and has a great capacity to reduce risk. Better transparency enables the handling of better transactions safely and to provide a additional resilient environment in our world platform.”

In-home versus vendors

As far as the technology itself goes, SG CIB’s staff are split fairly evenly between vendor product experts and developers of customised solutions.

“We may choose a vendor solution for a few reasons; to get to market quicker or sometimes we find a vendor who is innovating and can help us extend our position in what we do. I hasten to add that even if you are not using a vendor product explicitly, development of software solutions does not involve writing each line of code but employing components from vendors.”

The commoditisation of IT has advantages in the speed and relieve of development, removing the necessity to reinvent the wheel over and over again. But technologists must fully understand what it is they are building with and that makes the training and sourcing of IT staff harder as time goes on.

Mr Woolley says: “The next generation of technologists have grown up with smartphones, and they have a very different perspective on IT to those of us who grew up having to use telephone boxes to call our friends. This makes the next generation very comfortable users of technology. But the risk is they may not understand the complexity of the technology layers they are asked to deliver solutions on – although there are very strong younger IT professionals coming through, sometimes they just see the veneer that sits over the technology stack. Having a depth of considerate of computer architectures is critical to delivering innovative IT solutions.”