is rising. In a low-yield environment we are seeing more strategies make effective use of derivatives for yield enhancement. In
addition to that global quantitative easing has effectively put a
bid under all assets it’s important
we hedge downside risks, as well
to account for change of central
bank policy when it comes.
How engrossed are
trading desks becoming
in derivatives as they
become more multi-asset?
We are fortunate enough to have
the scale where we have desks
split into asset class specialists.
They can manage every element
of a trade in cash or derivatives
in that asset class. However, there
are certain strategies that need to
trade in a co-ordinated fashion
across assets, we also have the
ability to manage that flow effectively and find it usually works
best with one multi asset trader
handling all elements of a trade.
What markets do you
actively trade on?
We pretty much trade in all
asset classes globally, in hard
and soft currencies, in cash,
listed and OTC products. We
are fortunate enough to have
trading desks in Hong Kong,
Geneva, London, and New
York, with asset class specialists
in each location to handle this
diversity. We take the approach
What is your current
view of the derivatives
I think the derivatives market
has matured enormously since
the crisis in 2008, and in essence
we have got back to basics.
We have seen a lot less
demand for the exotic structures and complex strategies
that were more common then,
so we’ve seen various sell-side
houses adjust their sales offering to reflect this.
In addition to this we have
seen a new regulatory regime
introduced in Dodd-Frank,
EMIR and MiFID II, which will
not only deliver a huge operational workload to us but will
by default have an effect on our
sell-side counterparties and
how they interpret the effects
on banking regulations, but
which will have a huge impact
on their offerings.
We will most likely see some
adjustment in the sell-side as
they interpret these rules. Over
the next few years there will be
an equilibrium established where
we will see some of the secondary players that don’t have the
real scale in the market step away
from this business as a result.
How important will
derivatives trading be
for your strategies?
They are immensely important,
they are a huge part to our
strategy and it seems that trend
of where we can capture the
required exposure the natural
path would be to use listed
derivatives products. We con-
stantly monitor this market for
liquidity and when we see there
are potential constraints in cer-
tain contracts we can look to
blend in an OTC exposure.
This of course doesn’t always
suit certain types of strategy
which is where we would look
to the OTC derivatives market.
A consideration for using OTC
is the cost of balance sheet.
Prices you receive will be based
on a market maker’s spread on
their perception of fair value,
so if you trade you are going to
have a negatives mark-to-mar-
ket effect on your portfolio, and
that is still very much an RFQ
What are your main
The regulatory landscape has
changed beyond recognition in
the last five years. With several
major regulatory standards coming into play in the next couple
of years its important not only
to incorporate how we interpret
that to our immediate business
but also to consider how this
effects our sell-side partners,
trading counterparties and even
our vendors business also.
With MiFID II coming
into effect January 2018 there
will be a rush for technology
vendor resource to implement