Deutsche sees insurance sector picking up structured products
Deutsche Bank wins Best Bank for FX in the Eurozone and Best Bank for FX Structured Products at the 2016 FX Week Best Banks Awards
As volatility in EUR/USD drifted lower throughout the year, foreign exchange desks suffered as muted client demand for structured products caused low levels of activity in some areas. But, for others, the stability of the exchange rate offered opportunities to risk-manage positions that were out of line with prevailing levels.
Deutsche Bank spent the quiet year looking at ways to help clients benefit from opportunities in an environment where – while volatility has been low – the risk of large market swings have made hedging exposures very expensive. To do this, the bank has come up with several risk management scenarios that lower the cost of hedging by providing specific products for the underlying activity of clients.
"The low volatility provided opportunities for sophisticated real-money investors who generated returns by going short long-term volatility via bespoke investment products," says Jeremy Monnier, global head of FX solutions at Deutsche Bank.
One risk that many international banks, particularly in Asia, wanted to hedge in 2016 was the FX vol risk, arising from structured notes such as power reverse dual currencies
Jeremy Monnier, Deutsche Bank
"One risk that many international banks, particularly in Asia, wanted to hedge in 2016 was the FX vol risk, arising from structured notes such as power reverse dual currencies. Hedging this risk was complicated by the shortage of long-term vol sellers, but we were able to connect buy- and sell-side participants, again showing the benefits of having a diversified client base," adds Monnier.
The bank has also identified demand for products covering specific circumstances, such as mergers and acquisitions, where the timing of money changing hands is subject to a great deal of uncertainty. To better match the economics of the underlying deal, the bank designed a suite of deal-contingent solutions. For unusually large transactions, it offered innovative execution strategies that balance the need for protection and confidentiality.
"We also worked with clients to risk-manage positions at a portfolio level and we worked very closely with clients throughout Brexit, for example, where the eventual outcome was unexpected but the risk was material. We encouraged clients to limit their risk exposures going into the vote," Monnier adds.
Key e-investment
Russell Lascala, global head of spot FX trading at Deutsche, says the bank's ability to continue investing in its electronic trading platform remains a real differentiator, particularly in e-FX, where the bank will continue to focus its efforts.
"We are seeing new products coming online as the result of our multi-year investment strategy. These products include exciting developments such as client algos – our ABFX GUI – and ensuring all aspects of the trade life cycle continue to meet regulatory expectations," he says.
Lascala reiterated Deutsche's strategy to turn its focus away from market share and volumes – a shift the largest FX banks all made in 2015 and this year – and emphasise core clients and quality of business instead.
"Our emphasis on quality has been successful and [it] helped us to focus on the needs of our top-tier clients," he adds.
During 2016, we saw steady corporate demand for emerging market FX hedges due to continued volatility in crosses such as USD/TRY
Russell Lascala, Deutsche Bank
As market participants adapted to a new risk environment this year, the size and breadth of Deutsche Bank's client franchise proved instrumental in its ability to provide continuous liquidity and pricing to both customers and the industry.
"During 2016, we saw steady corporate demand for emerging market (EM) FX hedges due to continued volatility in crosses such as USD/TRY. Plain vanilla hedges remained relatively expensive and we were well positioned to help clients address this challenge," Monnier says.
EM risk management
For the past two years, Deutsche has also been focusing on EM risk management solutions for clients, developing a range of EMFX products, such as the Automatic Rolling Collar, which offers protection for zero upfront premium and limited to no negative carry.
And, as political risks heading into 2017 look set to be a major issue for market participants, new customer segments may also turn to structured products.
"We believe the insurance sector may have to look at FX more closely next year, and we also expect large-cap European corporates to become more active in the use of structured products. Overall, we remain optimistic about next year and expect markets to become more liquid as volatility picks up," Monnier concludes.
Click for editor's introduction, list of interviews and awards tables
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact customer services - www.fx-markets.com/static/contact-us, or view our subscription options here: https://subscriptions.fx-markets.com/subscribe
You are currently unable to print this content. Please contact customer services - www.fx-markets.com/static/contact-us to find out more.
You are currently unable to copy this content. Please contact info@fx-markets.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@fx-markets.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@fx-markets.com
More on Awards
Asia FX Awards 2024: The winners
The FX Markets Asia FX Awards present 43 categories, determined by an esteemed judging panel comprising industry experts and FX professionals across Apac. They have paid attention to firms that brought unique and innovative ways to fulfil industry needs…
Best blockchain technology service provider: Talos
By building a robust ecosystem with a blueprint based on traditional asset classes, Talos has attracted a network of the most important institutional players to its digital asset trading platform
HSBC wins six Apac FX house of the year awards
With one of the strongest footprints in the Asia-Pacific region (Apac), HSBC provides international clients with an extensive local FX franchise while facilitating local clients’ access to international markets
Best FX prime broker and Best compression/optimisation service for FX: HSBC
With one of the largest FX networks worldwide – and strong coverage in Asia and other emerging markets – HSBC’s FX prime brokerage remains a strategic partner to key financial institutions
Best aggregator and Best FX analytics provider: oneZero
oneZero continues its rapid growth as FX brokers, banks and non-banks in Asia and beyond benefit from the advanced features its multi-asset trading and analytics technology provide
Firms seek optimisation gains as UMR and SA-CCR bite
A wider range of market participants is taking advantage of service providers such as OSTTRA’s optimisation cycles to drive margin and counterparty credit risk efficiencies across asset classes including FX, rates, equities, commodities and credit
Best FX overlay manager: State Street
In the most challenging market environment in many years, demand for State Street’s currency management offering spiked in 2022 as market participants sought assistance in minimising their FX risk and optimising their hedging activities
Best settlement initiative: CLS
Created 20 years ago to mitigate FX settlement risk, CLS continues to lead the settlement sphere with new solutions designed to meet the challenges of an ever-evolving FX market
Most read
- Asia FX Awards 2024: The winners
- HSBC wins six Apac FX house of the year awards
- Banks face tough choices over single-dealer platforms