State Street plans to make two additional hires in foreign exchange options in the coming months to manage desks in London and Sydney respectively, said Snyder. They will report to Lynch.
Snyder said the bank had an existing options business prior to Lynch’s appointment, but this was a "modest capability". The new initiative is a "strategic push to further gain market share with our fund manager clients in the same way as we have in spot and forward FX", he added.
The need to upgrade State Street’s options service has resulted from change in its client base. The bank has a growing business with absolute return managers – funds that aim to deliver returns in both rising and falling markets – said Snyder. Whereas about a year ago the bank’s clients were almost entirely real-money managers with hedging needs, it now counts more and more absolute return funds as clients, as well as commodity trading advisers, hedge funds and currency overlay managers using portable alpha strategies.
Moreover, State Street has about 500 fund managers globally among its clients, which before had been constrained by their investment mandates. Now they are much more likely to manage their risk using options, said Snyder. "Over the past 12 to 18 months they have gained more authority to use options," he said. "And State Street is one of the leading providers of spot and forward currency trading services to investment managers, so it is natural that they want us to provide for their currency options trading requirements."
Currency options previously often fell under derivatives prohibition clauses in investment management agreements, but in recent years asset managers and currency overlay managers have succeeded in getting their pension fund clients to allow them to use FX options, Snyder explained.
To further boost its forex options drive, the bank has implemented a treasury system from US-based technology vendor Wall Street Systems that covers forex spot, forward and options trading. It has already gone live with the system in Boston and London. Canadian and Asian desks will be added over the coming months.
The week on Risk.net, November 25-December 1, 2016Receive this by email