Louis Capital Markets will launch a single-stock variance swap desk in September, and plans to set up a dividend swap desk once liquidity on these instruments improves. The New York firm has about 10 people trading exotic derivatives, and expects at least five of them to trade single-stock variance and dividend swaps once the desks are up and running, said Michael Benhamou, a managing partner in the broker-dealer's New York office.
The market for variance swaps in the U.S. has picked up in the last six months and clients are demanding single-stock swaps, Benhamou said. He added, "The big exchanges, I'm sure, are working on how to list this." The firm launched an index variance swap desk in New York last month.
Benhamou said dividend swaps have become very trendy in Europe, but have not become popular hedging tools among U.S. players. The brokerage is interested in getting into these sophisticated products because margins are still high. Although the market is not yet liquid, Benhamou thinks it will only take the entry of a couple of large banks to change that.
