The use of derivatives is skyrocketing as more corporations are discovering their capabilities for risk management. In our first annual awards we recognize the derivatives providers that companies and analysts most respect.
Volumes in the global derivatives markets continue to grow at a rapid pace, with the headline numbers for both over-the-counter and exchangetraded instruments now measured in hundreds of trillions of dollars. Once seen as arcane specialist instruments, derivatives are now interwoven into the fabric of all aspects of finance, not least corporate risk management.
The International Swaps and Derivatives Association found in its most recent survey of corporate usage that 460 of the worlds 500 largest corporations use derivatives to manage and hedge risk more effectively. For those firms, as for the many other companies that use derivatives, the main focus is on interest rate and currency risk management.
However, there is also strong use in commodity derivatives and growing use in equity and credit derivatives. Consequently, with our inaugural awards we wanted to explore each asset class and discover which of the derivatives providers for corporate use are best thought of and best placed to meet growing demand.
The first annual Global Finance Awards for Best Derivatives Providers recognize the banks that provide the all-round best service to corporations in each asset class a cross the three main financial regions of the world. This service is judged in terms of not only general day- to- day customer support, but also other key co n s i d e rations including exe cutionefficiency and capability, price transparency, product exper-tise , innovation, technology, and re-search/trading ideas.
Biggest does not, of course, always equal best. Nevertheless, in the con-text of derivativeswhich by definition require broad and deep know ledge resources, while customer offerings necessitate strong hedging capabilities from their providersit is perhaps no surprise that the winners are major players in the inter bank derivatives markets as well. The awards were compiled through the canvassing of opinions from treasurers involved in all three regions at both the national and international levelsandnon market participants, such as analysts and consultants, combined with market intelligence garnered by the Global Finance editorial team . Throughout this research a number of themes emerged that we recommon across regions and asset classes. One, which is widely appreciated , is the blurring of asset classes on the provider side to more closely reflect treasury operations. Another is the introduction by many banks of broad based treasury advisory services that include derivatives. At the same time, cross-asset- class struc turing is a sign of another key theme: innovation. There is agreater focus on innovation, whether to produce cost savings or tailor -made products that m o re accurately meet corporates needs. However, because corporation s memories tend to be longer than banke rs and the lessons of the pa st we re learned the hard way when overly complex, highly structuredproducts were som etimes sold as a means for banks to offload unwante drisk, trust is also an important issue. That trust usually emanates from a strong and usually long-standing provider- corporate relationship, which, ultimately, is the most important criterion for treasurers.
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NORTH AMERICA Best Commodity Derivatives Provider Best Credit Derivatives Provider Best Equity Derivatives Provider Best FX Derivatives Provider Best Interest Rate Derivatives Provider
Best Commodity Derivatives Provider Best Credit Derivatives Provider Best Equity Derivatives Provider Best FX Derivatives Provider Best Interest Rate Derivatives Provider
Best Commodity Derivatives Provider Best Credit Derivatives Provider Best Equity Derivatives Provider Best FX Derivatives Provider Best Interest Rate Derivatives Provider
Chicago Mercantile Exchange |
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NORTH AMERICA
BEST COMMODITY
DERIVATIVES PROVIDER
Morgan Stanley
Given its success across other regions,it is perhaps no surprise that Morgan Stanley emerges as the preeminent commodity derivatives provider at the epicenter of its global operations, North America. Here, too, is the major part of the banks real market operations, which provide it with greater pricing and liquidity capabilities than nearly all of its competitors.
Morgan Stanley has significant refined storage capacity outside New York City; it owns three power-generating units in Nevada, Georgia and Alabama; and its commodities division is the exclusive marketer of the electricity generated by these plants. In recent months the bank has also been aggressively buying up natural gas supplies to market.
Access to the underlying markets aside, Morgan Stanley won praise for its global presence and strong client relationship philosophy and overall expertisethat expertise being endorsed by its product offering for the most commodity-conscious region in the world, namely, precious metals, base metals, crude oil, refined oil products, natural gas and electric power across the spot, forward and futures markets, as well as exchange-traded and OTC options and swaps on precious metals, crude oil, oil products, natural gas and electricity.
BEST CREDIT
DERIVATIVES PROVIDER
JPMorgan
Corporates in North America are no different from those in the rest of the world in that only a small percentage has begun using credit derivatives. But they are now regarded as being on the launch pad in readiness for the expected take-off of credit derivatives activity from treasuries. JPMorgan has been at the forefront of leading firms to such a launch pad.
The bank has spent a great deal of time and effort in educating the corporate market on the applications of credit derivatives and their relevance to corporate activities. In addition, rather than focusing on a one size fits all approach, JP-Morgan has concentrated on putting together tailor-made structures to exactly fit prospective clients needs. Andrew Palmer, global head of credit derivative marketing at JPMorgan, says: We have really integrated the subject of credit derivatives into capital market discussions with corporates. In our view, at this stage in the development of corporate usage of the instruments, it is far more important to focus on education rather than purely trying to sell products.
BEST EQUITY
DERIVATIVES PROVIDER
Citigroup
The strength and depth of Citigroups North American corporate equity derivatives franchise is evidenced by its consistent appearance in the market as one of the top firms in terms of both deal volume and noteworthy transactions. The banks broad platform in all areas of the equity business and multiple distribution channels enable it to better manage its own risk, thereby creating the keen pricing and high levels of service that corporates require. Citigroup has not rested on its laurels, despite its history of success and strong client relationships. As North American treasurers have shifted their attention toward enhancing existing capital markets products in recent times, the bank has kept in line with them.
Citigroup was one of the first banks to move its corporate equity derivatives team out of the derivatives area and into its equity capital markets area, from where it still leads the way in the increasing confluence of equity capital markets products with equity derivatives technology.This is perhaps most notable with its DEX (debt exchangeable for common stock) synthetic equity product.
BEST FX
DERIVATIVES PROVIDER
Citigroup
Citigroups strong focus on corporates and its willingness to put considerable resources toward providing creative solutions has won it many admirers in the FX derivatives space. In addition, the bank is widely regarded as the most innovative firm in developing benchmark products that enable corporates to execute their transactions at transparent rates.
Citigroups work on the technology front is also much appreciated.The banks leading role with its own systems on a stand-alone basis, as well as in combination with the multi-bank FX portals, has ensured its clients have access to a fair market rate in the liquid markets. Equally important has been the development of Citigroups FX risk advisory service, which provides a range of facilities from the development of market early-warning signals to industry benchmark analysis. In the latter case, this helps treasurers understand their own risks,together with how other treasurers across various industries are dealing with the differing currency problems and issues they face.
BEST INTEREST RATE
DERIVATIVES PROVIDER
Morgan Stanley
Morgan Stanley is, of course, one of the worlds fixed-income powerhouses and has been a key player in the interest rate derivatives market since its beginning. The bank also has a well-founded reputation for product innovation.
However, it is the quality of its client relationship management that sets the bank apart from the handful of serious contenders in this area. What is valued above all in this context is Morgan Stanleys consistency of presence across all markets, whether they are flourishing or not. We are delighted that corporate treasurers have recognized the strength of our interest-rate derivatives franchise in North America. We feel this is an acknowledgement of Morgan Stanleys continued commitment to the business, the quality of our people and the firms role as a value-added intermediary for our clients, says Jim Sandling, managing director and co-head of global interest rate trading at Morgan Stanley.
EUROPE
BEST COMMODITY
DERIVATIVES PROVIDER
Morgan Stanley
In Europe, Morgan Stanley again managed to edge out its closest rivals in the commodity derivatives market. The reasons cited included its reputation for expertise and innovation in providing hedging programs, scale advantages, strong credit ratings, global trading and strong client relationships.
Many corporates also value the broad range of products that Morgan Stanley is involved in, which reflect the greater range of risks being managed in Europe. The bank is a market-maker across the region in exchange-traded and OTC options and swaps on precious metals,crude oil, oil products, natural gas and electricity. For the corporates of Europe, as much as those elsewhere across the globe, Morgan Stanleys round the world, round the clock presence is vital. As Neal Shear, global head of commodities at Morgan Stanley, says, We believe the global nature of our business and the emphasis we place on finding the most creative solutions for our clients position us as one of the leading commodity derivatives providers in the world.
BEST CREDIT
DERIVATIVES PROVIDER
Deutsche Bank
For many corporates, the first time they are even aware of the credit derivatives market is when they find out that their company is being traded. Deutsche Bank quotes credit derivatives across a broad range of more than 1,800 names and is expanding that universe even further.
There are, however, a small number of other banks that do so, as well as sharing Deutsches preponderance to be at the top of the league tables for virtually every credit derivatives product globally. What differentiates Deutsche Bank from its competition is an appreciation for its continual product innovation in this arena. In addition to its strength in the interbank and CDO markets, together with the structuring of credit-based cross-asset-class instruments, the bank has achieved significant success in its illiquid asset business and principal finance business,Winchester Capital.As Rajeev Misra,global head of credit trading and securitization at the firm, says, Deutsche Bank is uniquely positioned to provide credit solutions on the issuer or investor sideno matter how structured, long dated or illiquid the products areto help corporate clients with risk management or financing issues.
BEST EQUITY
DERIVATIVES PROVIDER
BNP Paribas
Success in corporate equity derivatives provision is traditionally the preserve of the corporate finance and/or M&A; powerhouses. However, while BNP Paribas would not necessarily claim to be in that bracket, it has achieved considerable success in the corporate spaceparticularly over the past yearby leveraging its equity derivatives expertise and focusing on creativity. Christian Kwek, global head of structured products at BNP Paribas, says: Our expertise and creativity is clearly being appreciated because we have corporate relationships and transactions pending in all major jurisdictions in Western Europe. Behind that we can rely on the strong capabilities of the BNP Paribas equity derivatives trading business; a 500 headcount dedicated to equity derivatives overall is quite a machine to call on. This machine has been utilized to provide non-standardized solutions across a large range of strategic equity challenges, including ESOP creation and hedging, third-party equity stake management and disposal, and pension fund transition management. This extended to groundbreaking work on Islamic financing and techniquesin particular, for non-Islamic companies with Islamic business partners.
BEST FX
DERIVATIVES PROVIDER
Deutsche Bank
enallyDeutsche Banks European FX derivatives offering has won praise for its focus on adapting advanced quantitative analysis, usually used to help hedge funds plan model-trading strategies in order to provide a liquidity advisory service for corporate clients. Equally, the banks recognition of the importance of not only setting up risk management portfolios but also monitoring them on an ongoing basis has been appreciated by corporates.
At the same time, the bank has been willing to adapt its own infrastructure to better meet client needs. One important aspect that is often overlooked in foreign exchange is the need to combine FX and interest rate expertise to generate creative long-dated hedging strategies. DB FX is unique in having a specialized structuring team made up of a combination of interest rate and FX risk specialists, explains Rashid Hoosenally, head of client strategy and product innovation in FX at Deutsche Bank.
More recently, the bank has also brought its FX and commodities teams closer together with the express goal of helping clients who need to manage a combination of these risksa particular issue in Europe, with commodities usually priced in US dollars.
BEST INTEREST RATE
DERIVATIVES PROVIDER
JPMorgan
JPMorgan remains the biggest player in the global interest rate swap markets. But that fact alone is not enough to achieve success with corporate clients, who understandably are much more interested in their own individual circumstances. To this end, JPMorgan has installed a specialist team.
Guido Haller, head of corporate derivatives marketing for Northern Europe and CEEMEA at JPMorgan, says: The great strength of JPMorgan in this field is to be able to combine the excellent pricingwhich comes with the depth in the interest rate derivatives markets that we havewith an advisory approach. We also stay purposefully lean on the sales side.We utilize a small team for each country to provide local contact for our corporate clients and to deliver the resources of our advisory platform.
This platform, attached to the corporate derivatives team that the bank runs out of Europe, incorporates an accounting team, structuring specialists and an asset liability management optimization unit. These groups work closely with each other, the corporate derivatives team more generally and the customer, enabling the bank to provide holistic solutions that are accounting, tax, interest rate and FX efficient specifically designed for individual client needs.
ASIA
BEST COMMODITY
DERIVATIVES PROVIDER
Morgan Stanley
Morgan Stanley is one of the largest financial firms participating in the commodities market. As a bank, its primary business in the asset class is as a paper trader (one that focuses on derivatives rather than the actual commodities themselves), which for the main focus of its business with corporatesproviding hedging programs against their real commodity risksmakes little difference to end-users.
That said, Morgan Stanley has a greater role in the underlying markets than most other commodity derivatives providers, giving it an edge in terms of pricing capabilities. The banks leading role in corporate commodity risk management is further enhanced by its unquestioned reputation (a rarity in the energy markets post-Enron), scale advantages, strong credit ratings and global trading relationships. In Asia, where customer relationships and respect are key, the banks long-standing presence across the region, combined with the expertise and, just as importantly, low-turnover of staff, are highly valued.At the same time,Morgan Stanleys presence as a market-maker in the core Asia-focused derivatives markets of metals, oil and oil products is an added factor in its favor.
BEST CREDIT
DERIVATIVES PROVIDER
Deutsche Bank
Credit derivatives are at an earlier stage of development in Asia than in Europe or North America. Equally, the nascent corporate use of the products in the latter two regions is proportionately smaller in Asia.As the awareness and use of credit derivatives grows, Deutsche Bank has been at the forefront of the markets development, leveraging its strong fixed-income presence throughout the region. In 2004 Deutsche Bank was one of the first banks to execute credit derivatives transactions in Thailand soon after local guidelines were issued and continued to be the biggest provider of credit derivative products in Taiwan. In addition, its operations in Japan and North Asia have met with success from local corporates and have consequently exhibited strong growth this year.
No wonder, then, that in the context of credit derivatives, Deutsche Bank is widely regarded as the benchmark to which every bank in Asia should aspire.
BEST EQUITY
DERIVATIVES PROVIDER
JPMorgan
JPMorgans Asian equity derivatives business has historically been focused predominantly on Japan. But more recently the bank has expanded its franchise aggressively across the region, with notable success in Hong Kong, Korea, Taiwan and Singapore. A key part of this expansion process has been a close working relationship with local corporates.
That relationship has been fostered by the equity derivatives team, in combination with other parts of JPMorgans investment banking business in Asia, to provide derivatives solutions above and beyond standard capital market products to solve corporations problems. In particular, such problem solving involves both monetization strategies and hedging strategies, as well as investment strategies. Investment has increased in importance over the past year as growing numbers of Asian corporates are becoming cash rich as a result of economic recovery and booming equity markets and are therefore looking for alternative assets in which to invest. JP Morgans global strength in equity derivatives structuring and its Asian-based cross-asset structured product platform has enabled it to be ideally placed to capitalize on such demand.
BEST FX
DERIVATIVES PROVIDER
HSBC
In Asia, the diversity of currencies is almost matched by the diversity of foreign exchange regulations. As a result, whether a firm is a multi-national attempting multi-country-type hedging programs or a local firm managing its FX risk with near neighbors or G-3 currency suppliers, a deep understanding of the region by FX derivatives providers is placed at a premium.
HSBC is, of course, deeply rooted in Asia with a presence in most countries in the region, including a major treasury dealing room in all of the major financial centers. The bank even has a longer association with some countries than the main local banks, which has led to its success in this area.
As Ivan Wong, head of risk management advisory Asia Pacific at HSBC, says, We have a very substantial customer franchise, we know our customers and the regulations very well and have a strong reputation for providing risk management solutions to clients rather than just pitching products.
BEST INTEREST RATE
DERIVATIVES PROVIDER
Deutsche Bank
As in the credit derivatives market, Deutsche Banks success with interest rate derivatives in Asia has been built on a strong presence in all of the key centers in the region, both on- and offshore. This enables the bank to maintain a balance between local and global risk management expertise, exemplified by its ability to import financial technology that has been developed elsewhere into the region. Deutsche Bank has continued to lead the field in liability management, creating a number of innovative risk management solutions that enabled borrowers to reduce their risk exposure to rising interest rates, says Michele Faissola, global head of rates at Deutsche Bank. Two of the most popular solutions among local corporates are the FIFTY (forward issuance facility) and the Alpha Floating Rate Strategies. The FIFTY allows treasurers to lock into low current rates without increasing current leverage ratios, while the Alpha Floating Rate Strategies offers borrowers with floating-rate debt protection against a rise in interest rates.
MOST INNOVATIVE
EXCHANGE
Chicago Mercantile Exchange
Innovation at the worlds derivatives exchanges tends to happen in small gradations.Often such innovation is driven by competition.All of this is true of the Chicago Mercantile Exchange (CME), but the difference is that the sum total of small and large innovations has lead to a wholesale change at the exchange.
Over the past two years, CME has become the first publicly traded US financial exchange, following a highly successful IPO. It has maintained a consistent run of volume records and taken over the clearing contracts from erstwhile competitor the Chicago Board of Trade. Moreover, the exchange appears to be achieving what many thought was impossible in Chicago: the successful migration of trading from its trading pits to its electronic platform.
At the same time, CME has introduced a number of innovative technology solutions to complement its electronic platform, Globex, which enable the trading of complex futures and options strategies. The exchange has also been expanding its global electronic reach through the use of telecommunications hubs in Asia and Europe.
In terms of products, the worlds largest futures exchange provides benchmark contracts in interest rates, commodities and equities but still continues to innovate with contract sizes and fee incentive programs.Although by far the smallest of the asset classes it covers, in futures terms, CMEs FX products remain the most successful of their kind in the world and should remain so with a joint venture announced in September between CME and Reuters for eFX futures trading.
