Daiwa Securities SMBC has appointed Simon Roche as head of Synthetic Trading, to build a delta one trading book covering pan-European benchmarks.
The trading book will include swaps, index arbitrage and ETFs. Roche explains that the bank will trade third-party ETFs and is aiming to become a swap counterparty to existing ETFs in the market, by leveraging on its index swap business.
He says: "ETFs are having a fantastic time at the moment, with assets under management growing considerably despite the market conditions. There are clients who are concerned with counterparty risk who are not doing much over the counter business and are opting for ETFs as a way to alleviate this."
He adds: "I will be speaking with the major ETF providers to see if we will get involved in becoming an authorized participant and a swap provider if possible."
One area of focus for the investment bank will be hedge fund clients, who have not been traditional users of ETFs, particularly in Europe where the ETF lending market is less liquid than in the US.
"However a lot of hedge funds are stepping away from doing swaps because this means they have OTC exposure to counterparties, so they may well move into trading more ETFs." The firm has not yet ruled out creating a lending facility in order to create and lend on ETFs.
Roche, who is based in London, reports to Charlie Day, head of Global Equity Finance in the bank's derivatives division.
Prior to joining Daiwa, he was desk head of Delta One Trading, Equity Derivatives at Merrill Lynch.
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