JPMorgan is treating index tranche trading as a flow business and has carved it out as a separate unit within its credit hybrids groups in the U.S., Europe and Asia. "[Creating a separate unit] encourages the index tranche market-makers to trade much more dynamically around the day-to-day flows of the market," said Andy Silver, who is leading the effort in New York. This in turn allows more volumes to be traded and provides more liquidity to the bespoke business, he said, noting the bespoke business is one of the primary clients of its index books.
Silver explained JPMorgan no longer views index tranches as exotics because the market for trading them has become more liquid. "This is the right model now that the index tranche market is becoming increasingly the clearing market for structured credit risk," he said.
Currently JPMorgan has four index tranche traders globally, with one in Asia, one in Europe and two in the U.S., excluding Silver. Last month, the firm hired Benjamin Ho as a tranche trader in New York (DW, 7/29). The firm expects to hire two more traders by year end, one in London and one in New York.
Trading in Europe and Asia is now focused on investment-grade indices while vast volumes are traded on both investment grade and high-yield indices in North America, Silver said, adding the group will expand its focus into areas including crossover and emerging market indices.
