A South Africa-based securities lending and borrowing business is preparing for its next phase after splitting from Societe Generale.

Axon Xchange (Pty) Ltd (Axon) has been in operation for almost two decades, yet it has always acted under the guise of SocGen.

However, the French bank confirmed on January 18 it had reached an agreement to sell its custody, trustee and derivatives clearing services operated in Johannesburg to Absa Group.

Securities lending and borrowing services are not part of the transaction and will be terminated by end of March 2019, SocGen added.

As Axon’s Lloyd Keys explained to Global Investor, the firm first entered into a joint venture with SocGen in 2002.

“In terms of the joint venture Axon would supply the human capital and apply the associated collective skills and specialised expertise to set up an agency securities lending desk for SocGen to complement its custodial business in South Africa.

“The joint venture operated very successfully for 17 years until SocGen made the decision to officially withdraw from the South Africa in 2019." 

This, as Keys added, has provided Axon with the opportunity to offer an agency securities lending and borrowing function, but under its own brand.

“Drawing on the success achieved during the joint venture, the knowledge base built up over almost two decades, and the strong relationships forged during this time, the managing members of Axon are confident that they can continue to deliver exceptional client service and expertise.

"Leveraging off some of these strategic relationships, we have been able to replace the balance sheet of SG and offer our lenders a savvy solution to provide indemnification and the accompanying peace of mind this brings to the beneficial owners.

“Additionally, working in tandem with a European bank with the pedigree of SG gave us the advantage of learning the robust risk practices they attempt to apply, which we will continue to adopt as we operate independently,” Johannesburg-based Keys added.

According to Keys, the market has reacted well to the news - partially aided by the rumours of the SocGen/Absa transaction circulating in the market since August last year.

"We have been blown away by the support we have received thus far, and we are incredibly excited to begin this venture as Axon," he continued.

"As a highly specialised securities lending and borrowing agent, we aim to build on our reputation of being market leaders in the South African agency model, whilst supporting financial stability, enabling enhanced market liquidity and pricing efficiency."