The rapid growth of the credit derivatives market, and its seemingly unending appetite for complexity, has meant banks and investors have had to work hard to keep their risk management practices up to scratch. What can they learn from recent events in the ailing US car industry? Natasha de Teran investigates.
From new recipes to house specialities, demand for structured products is as strong as ever. Natasha de Teran investigates what is on the menu for investors and what tastes are being catered for.Christophe Mianné, global head of equity derivatives at SG CIB, describes the equity derivatives business as being very much like the pharmaceutical industry: one in which players can either invest in research and development (R&D) and base their business on sophistication and innovation, or run a volume-based, generic business.
Natasha de Teran considers Europe’s regulatory landscape, its impact on distribution and why banks have lost faith in the ideal of a single market.Between the EU Savings Directive, the new International Accounting Standards (IAS), Basel II and the other edicts emanating from national and international regulators, derivatives structurers and markets have had a complex task in recent years. So much so, in fact, that the French have come up with a new word for describing their method of dealing with the issues: structuration.
Exchange traded funds have been in existence for more than a decade but have only recently become significantly popular products. Natasha de Teran charts their progress and new developments.Although exchange traded funds (ETFs) were first introduced in the US in 1993, they have really taken off in the past three or four years. In 2000 there were fewer than 100 ETFs listed globally, with less than $100bn in assets between them, according to research from Morgan Stanley’s ETF guru, Deborah Fuhr.
All the noise surrounding pension liabilities and EU-wide reform has meant that asset liability management solutions have now become one of the hottest topics in the investment banking world. Natasha de Teran asks what role equity derivatives can play.Pension liabilities are the bane of many corporates’ existence and a worry for people who are not blessed with solvent defined benefit schemes or a good pool of retirement assets to cushion them in their old age.
The equity sector may be one of the smallest derivatives markets but it has a high profile and a profitable reputation.Natasha de Teran investigates this highly lucrative business.For the status it is given, you would never believe that the equity derivatives business is one of the smallest of the derivatives markets. The outstanding amounts of equity-linked, over-the-counter derivatives contracted were valued at a mere $4400bn at the end of last year.
Asset and liability management is a growing area for banks and several major players have set up insurance and pensions teams, made up of specialists from a wide range of disciplines. Natasha de Teran reports.Banks that are feeling sorry for themselves at having to grapple with the minutiae of the impending new capital adequacy framework should spare a thought for the European insurance industry.
A plethora of new products in the credit derivatives market means that investors, and sometimes bankers, struggle to keep up with developments. Natasha de Teran asks why some products take off easily while others strain to build traction.Credit derivatives have been the hottest and fastest growing sector of the over-the-counter (OTC) derivatives market for some time now, drawing in players in ever-greater numbers.
Credit specialists have risen to market challenges with new products. However, the recent fashion for longer-dated synthetic CDOs could present more risks than investors realise. Natasha de Teran asks how concerned we should be about this latest trend.
Banks could profit from the burgeoning repo market if their collateral management is sophisticated enough, yet few have attempted to integrate this function. Natasha de Teran reports. With the increasing focus on risk-reduction and the imminent arrival of Basel II, the fast-growing repo market – in which the seller of securities agrees to buy them back at a specified time and price – is likely rise to prominence and expand beyond recognition.Banks that are already at the forefront of secured lending will profit from this growth but, as more assets are added into the acceptable collateral pool, sophisticated collateral management capabilities will become imperative.
Retail investors are crying out for better yielding investments and bankers are rushing to design structured credit-based solutions in answer to their demands. But are retail markets ready for them? Natasha de Teran reports.Strict regulations and desultory market conditions have tested banks’ ability to develop and deliver attractive products for retail investors. Years of lacklustre performance have driven the consumer end of the market away from traditional equity markets towards evermore diversified investments, and bankers have rushed to develop new products to attract them, based on commodity, rate and other multi-asset pay-offs.
Exchanges and clearing houses, faced with compressed margins and increasing competition, are looking outside traditional sectors for growth opportunities and delving into over-the-counter markets. How are banks turning this threat to their advantage? Natasha de Teran investigates.Gone are the days of strictly marked territories, when exchanges and their clearing houses had a guaranteed stronghold on specific markets. The concept of these being “sleepy” utilities has not yet faded but both are starting to change the ways they do business – even, in some cases, by encroaching on areas that used to be the unchallenged preserve of banks or brokers, their principal customers.
As the good times roll in the global real estate markets, the capital markets have been moving further and further into real estate lending. Natasha de Teran finds out who has the upper hand in commercial mortgage-backed securities.Property financing was once the purview of commercial banks alone. However, a trend in which a handful of investment banks entered the US real estate markets following the doldrums of the late 1980s has since begun to extend to Europe and beyond.