Icap to broker economic derivatives

Icap has agreed to broker the parimutuel auction-based economic derivatives jointly developed by Deutsche Bank and Goldman Sachs, the firms announced today. Icap will offer the full range of economic derivatives, including vanilla and digital options and forwards on the US nonfarm payroll employment statistic, the ISM manufacturing statistic, and the US retail sales (ex-autos) statistic.

Icap will also offer its clients the newest economic derivatives: one- and three-month options on the Eurozone harmonized index of consumer prices (ex-tobacco) inflation statistic (HICP). The first auction for this product is slated for May 20, with options on US inflation, based on the consumer price index statistic, slated to follow in June.

"We believe there's a huge application for this product,” says Andrew Samawi, global head of economic derivatives and parimutuel products at Icap in New York. “We have a strong hybrid model at Icap and will be able to use our global electronic distribution and different product desks of experienced voice brokers, with our economic derivatives desk at the core." Samawi says the firm has set up a dedicated three-person desk in New York and is putting together a similar group in London.

“Since we find that this product reaches into the currency market and the rates market, and we’ve been taking orders from overseas as well as here, Icap looked like the ideal interbank distribution partner,” says Bill Cassano, vice president - economic derivatives at Goldman Sachs in New York. “Our client base is primarily the hedge funds and the prop-trader community at the banks. Icap reaches into the interbank market, which is an area that we don’t interact with, generally. When we do interact with it, we do so through brokers, so this is a natural way to have this product distribution mature,” he adds.

If successful, the new inflation product could be a good match for Icap’s existing client base. Samawi says: “We have 90% of the inflation swap business in Europe and inflation swaps could certainly benefit from the HICP auction. This will allow the inflation swap traders to be able to come in and hedge their long-term positions by taking care of their short-term volatility."

"Non-farm payroll and the other economic statistics appeal to a wide range of clients including those trading currencies, those trading options, those using our treasury area,” Samawi adds. “There has already been strong interest from our European inflation swap client base."