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Derivatives

Fx Exotics Pick Up Steam In Asia

Exotic foreign exchange structures on Asian currencies are growing in interest and volumes could double next year. "We're seeing a lot of cutting edge stuff," said Louis Cucciniello, v.p. of global fx options at JPMorgan in Singapore, adding, "A lot of products found in the G-7 currencies are now being offered in the regional [markets]." He continued that such instruments, as currency hybrid products, which contain exposure to interest rate, foreign exchange and commodities risk, typically structured in note form with embedded options, are becoming fashionable on regional currencies.

One foreign exchange specialist said exotic fx structures, which currently account for roughly 5% of the total market in Asia, could double by next year on the back of greater client sophistication.

Claudio Piron, head of fx strategy at Standard Chartered Bank in Singapore, said low, stable interest rates mean customers are looking to take a view on rates along with the direction of Asian currencies can do this through exotics. He continued that demand for such structures will likely increase as volatility picks up on regional currencies. The terrorist attack in Bali and the repatriation of funds from Europe and the U.S. is the main driver behind the recent spike in volatility, according to Piron.

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