Eyes on the future
for the buy-side’s derivatives trading flow heats up, the need for
differentiation and value-added services from sell-side providers will
intensify, according to Jeremy Wright, global head of futures and options at
Wright was tasked
with responsibility for reviewing the UK state-owned bank’s derivatives
business 18 months ago, having previously been COO of the firm’s markets
offers voice trading for fixed income and short-term interest rate products,
but has identified an opportunity to capitalise on changes in demand for
derivatives trading and clearing services. The new rules, which will start
coming into force at the start of 2013 in the US and Europe, will lead to a
substantial proportion of the swaps market being traded on exchange-like
platforms and cleared through central counterparties.
“We are seeking to grow our futures and options client base by tapping into existing relationships we have with financial Institutions
and Corporates,” said Wright, noting RBS’s strong
position in energy and the transaction services space. “Many clients see futures as a payback product for other
services that the bank provides because of the superior returns it offers.”
Wright is now
focused on the delivery phase of RBS’s futures and options offering, having
hired a sales and execution team and presided over the build of new systems,
including a new front-end execution platform for clients and in-house traders
developed jointly with trading technology vendor SunGard, and a new clearing
platform that will go live this autumn. The firm has recently hired Jeremy
Smart as global head of electronic distribution and Brian Daly as head of
listed futures and options sales.
RBS views the
addition of decision support tools to help customers already using voice
trading services and the combination of this with electronic trading capabilities
as two key differentiators of its derivatives business.
"We have identified an opportunity to add value to our
existing voice business through research, analysis and trade ideas,” he said. “Voice trading is expensive, and
therefore it is imperative that we provide added value to our customers
to justify the costs.
The electronic trading
offering, overseen by Maria Netley, head of client electronic execution, is also
in the process of being built and will include a new range of algorithms and
DMA capabilities. Rather than re-engineering existing equity algo strategies –
a business that RBS has now exited as part of a wholesale reorganisation
initiated in 2009 – the firm is developing new strategies from scratch.
of sell-side derivatives offerings has also occurred alongside an evolution of
buy-side trading desks, with a growing number of firms centralising dealing
capabilities for equities, fixed income and derivatives instruments into one
place. Wright notes a convergence among the needs of different investors.
In addition to
serving the buy-side’s derivatives execution needs, banks are also considering
ways to help the buy-side meet the added pressure to deliver collateral to
central counterparties in a timely manner. Buy-side firms will look to their clearing
brokers to facilitate the delivery of margin payments, but brokers will be
hampered by capital constraints that are imposed by the introduction of Basel
III, the latest set of standards to ensure that banks are adequately
'We predict that certain
clients will be under pressure to change from their current service providers
when regulatory capital rules are introduced,' said Daly, who joined RBS after working at Morgan Stanley for over 10 years. “We also predict that
clients will require diversification in the service providers in order to
maintain a balanced credit exposure. Hence, there is still plenty
opportunity in the current market place'.