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Corporate Derivatives Back On Track

29 Jul 2004

Corporate derivatives desks are busier than normal for this time of year, following a dearth of business for the first six months of the year.

Corporate derivatives desks are busier than normal for this time of year, following a dearth of business for the first six months of the year. Corporates are entering trades in spite of uncertainty over the adoption of international accounting standards that are due to come into play in January (DW, 5/9). Corporate activity has taken off in two main areas, say officials; financing strategies, such as issuing convertible bonds, and using derivatives to close out positions that are not strategically important.

Officials, however, could not pin-point precise reasons for the upturn. Alex Caramella, corporate derivatives banker at UBS in London, said, "I don't think the [market] conditions have changed dramatically from a month ago, but on the other hand we are seeing larger volumes of trades." One factor could be that continuing low equity volatility and slow stock market growth means corporates are looking to close out unnecessary positions, explained one market official. A recent example is the transaction last month in which DaimlerChrysler entered a collar trade with Deutsche Bank to lock in the current share price on its 2.7% stake in aerospace groupEADS.

 

29 Jul 2004