Derivs - Equity

Private banks in Asia Pacific are showing less appetite for hybrid structured products that mix fixed income underlyings with equity, commodity or fx assets, with other specialized investors, such as hedge funds, instead driving the trend.

The International Swaps and Derivatives Association has published a new 2013 standard credit support annex to standardize market practices in collateral management for over-the-counter derivatives.

Hedge funds are buying structures that allow them to position for increased U.S. interest rates and currency appreciation simultaneously.

Interest in light exotic options on equity indices is increasing as institutional investors opt for the instruments in an effort to increase yield in the current low-yield environment. Light exotic options are so-named as they have an exotic payoff but can be statically replicated by a vanilla instrument.

Equity derivatives and structured product volume on Hong Kong and Chinese equities has been depressed over the last three months due to the shift in allocation to Japanese assets and investor concerns over the slow pace of Chinese regulatory reform, according to traders.

Stephen O’Connor has left his position as managing director at Morgan Stanley to take up the position of full-time chairman at the International Swaps and Derivatives Association.

Investors have been picking up hybrid range structures to maintain better yield levels in the low volatility environment.

The European Securities and Markets Authority has declared that a central counterparty should not exclude client positions from the calculation of the size of the default fund.

Scott Becker, equity index options trader at Jefferies in New York, is joining Morgan Stanley in a similar role, also in New York.

The increase in hedging costs post-Dodd Frank will lead to a drag on fixed income portfolio returns, with costs ranging from 20-62 basis points for centrally cleared instruments, according to a report from Sapient Global Markets.

Irene Brunner, the ex-head of public distribution for structured products at the Royal Bank of Scotland in Zurich, has joined Deutsche Bank as head of passive investments, Switzerland, also in Zurich.

Japanese investors are buying yen-denominated Nikkei-linked uridashi structured products, such as autocallable and worst-of structures, replacing deals that have touched downside barriers as the Japanese equity market declined last week.