London (HedgeNordic) – “When we launched in 1992, we were a FinTech before the term was even coined. Being a FinTech is part of our DNA. The only constant is change,” says Stanislav Kostyukhin, Commercial Owner of Direct Business at Saxo Bank, headquartered in Copenhagen.

The firm takes pride in its Danish roots and entrepreneurial culture, but is always adapting and staying ahead of the curve. Saxo now has a global footprint of 16 offices. We serve and onboard institutional partners from our offices in key financial centers, including Denmark, the UK, Amsterdam, Singapore, Australia, Hong Kong and Switzerland. There are clients in 160+ countries, and client assets total over DKK 640 billion (EUR 85 billion). Saxo globally now has over 2,500 employees covering more than 65 nationalities.

Saxo caters to a broad range of clients, from retail to high-net-worth individuals, banks, brokers, family offices, and various asset managers including hedge fund managers – in the Nordics and globally. The firm has 850,000 clients, including over 200 white-label partners, which include some of the world’s biggest banks and financial institutions such as Banca Generali, Old Mutual, Standard Bank and Mandatum.

“During 2021, we welcomed more than 263,000 new trading clients. It took us twenty-five years to amass the first DKK 100 billion in client assets, whereas it took slightly more than four to gather an additional DKK 540 billion. We have a very efficient setup for onboarding, integrating and servicing our clients,” says Casper Andreas Andersen, Global Head of Products and Services.

“We have a very efficient setup for onboarding, integrating and servicing our clients.”

The platform is very scalable in part because most of the execution is electronic, albeit with some manual safety filters for regulatory checks and market impact. The systems can easily cope with 500,000 trades on a busy day or a million on some extra hectic days.

Saxo has a growing roster of more than 300 hedge fund and financial intermediary clients. “Especially alternative investment funds and smaller hedge funds are reaching out to us now because they need to trade a wider range of instruments, and want more operational efficiency. They do not want to have to deal with integrating different counterparties, execution systems, stock lenders and calculating margins,” says Daniel Bergman, Associate Director of Institutional Sales.

“Especially alternative investment funds and smaller hedge funds are reaching out to us now because they need to trade a wider range of instruments, and want more operational efficiency.”

Systematic and quantitative funds, which seek standardization and speed of execution, are especially attracted to Fix API for execution, and the execution offering is geared towards electronic trading. “A suite of in-house execution algorithms is part of the package, including TWAP, VWAP, icebergs and customized plug and play algorithms including low latency and fully scripted options that can be used for high-frequency trading. Furthermore we are having more than 200 million OpenApi request /day,” points out Andersen.

A small share of trades is handled manually, including some securitized derivatives that cannot be traded electronically.

INTEGRATED OFFERING

The package goes well beyond execution: “it is often most efficient to bundle execution and clearing with custody, order management and settlement. Most clients benefit from a full end-to-end package. We aim to be a one-stop shop offering end-to-end coverage and want to be the primary broker,” says Kostyukhin.

“However, the architecture is also open enough to accommodate clients’ own CSD setups,” points out Andersen. Additionally, Saxo can complement other banks and brokers. “We service clients in a very different way to traditional banks and brokers,” he adds.

“We service clients in a very different way to traditional banks and brokers.”

With a broad range of services in the catalogue, such as end-of-day files, a dedicated platform for case management, state-of-the-art performance reporting and simulation tools for back-testing of trading strategies, Saxo offers institutional partners an integrated solution that allows them to focus on what really matters: running their strategies as seamlessly and efficiently as possible.

CASH AND SYNTHETIC CHOICES FOR EQUITIES

Saxo Bank offers both a traditional cash prime brokerage setup and a synthetic CFD offering that allows clients to obtain leverage with the leverage wrapper that suits their needs best, according to Andersen. “Short positions are available synthetically and fully funded positions can be lent out via our Securities lending program,” he adds. Securities can be located internally or from third parties.

“The pros and cons of synthetic versus cash depend on the strategy, execution costs and ease of integration,” elaborates Andersen. “The most active traders will often find it cheaper to use CFDs. Those seeking to earn from stock lending will use cash.”

EXTENSIVE AND GROWING MARKET COVERAGE

Saxo is mainly focused on more liquid markets that are easier to automate and the coverage has grown both through organic initiatives and various acquisitions over the years. The universe includes 20,000 cash equities and other instruments in 28 countries; 7,000 ETFs and 15,000 mutual funds. Listed derivatives in over 40 global markets cover exchange-traded futures, options and single stock options. There are over 300 futures and 3,000 listed options.

Saxo is famous for its foreign exchange offering that helped to make the firm’s reputation at the start 30 years ago. “This includes over 180 crosses on the platform, which access liquidity from the largest financial institutions. We have FX options for more than 40 crosses as well as forwards,” says Andersen. “We are seeing growing interest in currency trading with the Euro below parity,” adds Kostyukhin.

“We are seeing growing interest in currency trading with the Euro below parity.”

Saxo also rolled out a crypto-FX offering in 2021 with fully automated trading. It trades the largest 3 cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH) and Litecoin (LTC) against major fiat currencies such as USD, EUR or JPY. Furthermore Saxo offers a dozen+ crypto based ETNs.

There are over 5,000 fixed income instruments and Saxo shops around for the best prices, automatically sending out indications of interest to multiple market maker parties. “We have state-of-the-art execution. Historically the market was rather opaque but we are now bringing more transparent price discovery,” says Kostyukhin.

Market coverage includes some of the most volatile and best performing commodities in 2022, such as German and Nordic electricity, as well as natural gas listed on Nymex, Dutch TTF Gas listed on EEX and Henry Hub in Chicago. The Eurex-listed carbon emissions contract is also traded. For most of these, Saxo has created CFD-equivalent contracts which allow for trading in smaller sizes.

Saxo sometimes trades as agency and sometimes as principal. “For securitized derivatives, we need to make our own prices and give clients access to superior liquidity. Thanks to the BinckBank inte- gration, we have become market leaders in products such as turbos and constant leverage certificates, which can be very popular in Middle and Southern Europe as well as Asia. There are local rules on maximum leverage,” says Andersen.

LEVERAGE, MARGIN AND RISK MANAGEMENT

Leverage is bespoke to the client, but Saxo does not compete on the lowest margin rates and highest leverage. “We have made a conscious choice to be ahead of the curve, including on regulation. For instance, the Australian regulator, which once allowed 400 times leverage, recently copied ESMA’s European restrictions on leverage. We have always been conservative so we were immediately compliant with the new rules,” says Christoffer Sagild, Senior Director and Head of Risk.

Saxo has developed proprietary models for margin and exposure calculations, monitoring risk limits, and stress testing. The packages vary with markets traded and wrappers. “There can be some degree of netting between delta one and options exposures. There can also be a more portfolio-based approach, netting over product wrappers, where we offer more holistic portfolio margining. It all depends on how a portfolio is structured. Overall, our netting is probably much more conservative than some more aggressive players,” says Sagild.

Saxo Bank’s award-winning platform is helping hedge fund managers to broaden their portfolio diversification and also enhancing operational efficiencies through its integrated solutions and electronic execution. It also offers the convenience of trading by phone, tablet or laptop from any location, which fits in very well with post-Covid hybrid working patterns. Saxo’s nimble, global and substantially automated business model is thriving in the volatile markets of 2022. The offering will continue to expand, and can sometimes add markets in response to client demand. With hedge fund industry assets now around $5 trillion, Saxo is currently a relatively small player but it is looking forward to a strong and long runway of growth.

This article features in HedgeNordic’s “Powering Hedge Funds” publication.