HSBC is planning to sell equity-default swaps by the end of March. Jerome Ferracci, head of equity derivatives in Paris, said the instruments will be sold from its exotic trading desk to hedge funds and proprietary trading desks at other houses. Historic low levels of implied volatility mean EDS, essentially deep out-of-the-money options, are not attractive to traditional investors. He notes, however, that demand from hedge funds and prop trading accounts using the instruments for speculative trading is growing.
This is part of HSBC's expansion in equity derivatives, according to Ferracci. As the group grows, it will look to expand its exotic options business with instruments, such as options on variance, being introduced next year.
