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SGI Méthodologies

Our indices follow a common set of rules in order to make the indices fully transparent, but also fully investable by reducing uncertainty and thus operationnal and market risks associated with ordinary and exceptionnal events.
 

From 16/01/2017 onwards - SGI cross asset Methodology Jan 2017 applicable to indices launched on or after 16/01/2017*

 

From 01/01/2016 to 15/01/2017 - SGI cross asset Methodology Jan 2016 applicable to indices launched after 01/01/2016 and until 15/01/2017*

 

*Subject to the individual Index Rules governing the indices

 

Equity Indices

The Equity Indices are indices designed to reflect the performance of a basket of equities; such indices are always managed in a three layer manner:
The first layer is the selection layer, where potential index members are screened for relevance in entering the Index.
The second layer is the allocation layer, where index members are weighted according either to their market value with free float and capping adjustments, or are weighted according to a fundamental scoring.
The third layer is the calculation in itself: weights and adjustments are transformed into a number of shares; index level is computed using a classical Laspeyres framework; ongoing maintenance is performed on a daily basis by our Index Calculation Agents using the rules set out in the methodology.

Version 1.0 of the methodology introduced the common management rules of Equity Indices;

Version 1.1 made clearer how some specific cases of rights distributions impact the Index;

Version 1.2 introduced a two stage rebalancing process, where the number of shares are determined ahead of the rebalancing date, and Index Divisor is adjusted for continuity on the rebalancing date.

Version 1.3 extended possible underlying classes to assets such as Indices, Funds and Interest Rates as well as adding definitions to Closing Price determination. 

 

Benchmark Statements:

 
Warning: conflicts of interest risks which Societe Generale  SA is exposed to as a benchmark administrator registered with ESMA following the European Regulation 2016/2011 of 8 June 2016 concerning indices used as benchmarks:

 

The activity of administering proprietary indices of Societe Generale SA, under the brand “SGI”, is integrated in the financial markets department of Societe Generale, “MARK”. The “SGI” proprietary indices are created primarily to be the underlying reference of products traded by MARK, which requires a regular interaction between the “SGI” index team and the other engineering teams within MARK. 

 

Furthermore, the “SGI” index team shall interact with the sales teams and the trading teams of the dealing room, particularly in the context of when new products are launched with an “SGI” index as an underlying reference.

 

The integration of the “SGI” teams within MARK leads to a risk of conflicts of interest.

Those risks are notably but without limitation:

  • Being incentivised to determine the level of the indices in a biased manner in order to favour  MARK’s interests; in particular by not correcting any calculation errors on the level of the indices, if these would be beneficial to MARK;
  • Being incentivised to change the compositions of indices in a way to favour MARK interests;
  • Being incentivised to change the index rules afterwards in a way to favour MARK interests;
  • In the case where “SGI” must use data provided by the Societe Generale dealing room to determine the level of certain indices, using data which could be unreliable
  • In the case where “SGI” uses advisors in certain indices in order to determine the composition of these indices and to manage in an insufficient manner the relationships with these advisors.

 

Furthermore, the trading teams of the dealing room which hedge the risks generated by the issuance of financial products by MARK, by taking positions on underlying financial instruments to replicate the indices composition, could be likely to have an interest in influencing the values of the indices components in the financial markets in an inappropriate manner.

 

In order to prevent these various risks, Societe Generale has implemented an oversight function, procedures and controls governing the administration of “SGI” indices, compliant with the European Regulation 2016/2011 of 8 June 2016 concerning the indices used as benchmarks.

 

The following measures are implemented to address these conflicts of interest risks:

  • The determination of the level of the “SGI” indices is assigned (i) to calculation agents independent of Société Générale SA (ii) or to a calculation agent situated within an independent department from MARK (iii) or to a valuation system within MARK with the appropriate conflict of interest mitigation.
  • Any change of index composition is (i) either rule-based and determined according to the formulas and process documented in the index rules with no discretionary intervention from MARK (in the case of systematic indices) or (ii) performed on the basis of recommendations provided by external independent index advisors or index advisors  within SG group but independent from the dealing room of MARK (in the case of advised indices).
  • The rules governing the indices are made available to users, either on the SGI website or, depending on the case, provided individually to the user.
  • Proposed changes to the index rules are subject to prior approval of a committee composed of the head of “SGI” and the compliance officers in charge of following SGI activities who belong to the Societe Generale SA Compliance department, which is independent of MARK and of the index administration function. This committee, on an ad hoc basis, will decide (i) whether to  amend the index rules and (ii) the notification procedure in the event of a change.
  • Advisors are subject to a due diligence process which focuses on the licenses (e.g. collective management) they have and their level of expertise. The relationship with these entities and their framework of intervention is, when relevant, formalised in a legal agreement.

 

A dedicated department within the Societe Generale Compliance department carries out controls on the transactions conducted by the MARK trading teams, in accordance with Societe Generale’s regulatory obligations in order to detect risks of market abuse that could be generated by these operations.