Salomon Smith Barney Australia plans to start trading credit derivatives on Australian names in Sydney by the end of the month. The desk will make markets for clients as well as trade on a proprietary basis, according to Glenn Hodgeman, head of Australian dollar credit trading in Sydney. The firm previously offered these products from Hong Kong or London if clients requested pricing.
SSB is launching the desk as, "more domestic players are looking at relative value opportunities between credit derivatives and corporate bonds," said Hodgeman. It will target corporates and fund managers for the products. "It's becoming a deeper market," he noted, adding that as the credit derivatives market has developed and become more liquid, more domestic firms are eyeing the product. Hodgeman sees great potential in the market: "There's enormous opportunities--the growth rate exhibited throughout the world in credit derivatives in the last two or three years will likely be experienced [in Australia]."
Hodgeman, who joined SSB three months ago from ANZ in Sydney to set up the desk, handles the operation with one other trader. He said no additional hires are imminent but there is the potential to hire extra traders as the market develops. Hodgeman thinks SSB will have an advantage over several houses already in the market because, "[it] has an established corporate bond presence in Australia--and rather than quote credit derivatives from Tokyo or Hong Kong, we're on the ground. It's a different kind of commitment."
A trader at a rival house estimated the total size of the Australian credit derivatives market was roughly USD35 billion this year, more than double last year's USD16 billion.
