Industry leaders revive client-facing forex options teams

Top-tier banks are moving to set up core groups of client-facing options specialists, turning away from a previous trend to re-train all sales dealers to have derivatives expertise.

Officials said banks found it difficult to foster options knowledge among the entire sales force – a strategy that came into favour as electronic dealing reduced the time sales dealers spent executing client trades.

"Dealers need to have the core competency in the product, which is not easy to achieve without constant involvement in it," said Greg Kaldor, a senior institutional sales dealer at Bank of America, where he was also a former head of options.

Having a core group of specialists that are available to discuss complex options solutions, means clients can go to them directly, rather than wait to hear from sales dealers liasing with them. "Clients want to hear about solutions on the fly," said Kaldor. "‘Let me call you back’ is not what they want to hear."

Banks questioned the role of specialist options dealers as electronic dealing gained momentum. “Banks started thinking ‘why do we need specialists?’” said one senior official. “All our sales people should now be able to offer this service. But the actual execution of that is substantially more difficult – some dealers were able to give that advice and some were not."

At the same time, increased demand for client-facing options staff has come from the return of hedge funds to FX, and from the increasing sophistication of corporate clients, prompting many banks to re-examine the way they sell options.

Different types of banks, however, are responding to this demand in different ways. "Top-tier banks are more likely to have pure structurers," said one global head of foreign exchange options. "While the banks that are trying to get back into options will probably bring in options specialists who can help teach the day-to-day FX sales staff more about options or bring in client calls and serve as structurer."

Barclays Capital, JP Morgan Chase and ABN Amro are among those banks pursuing the former model.

BarCap expanded its structuring group, following the hire of Lutfey Siddiqi as its global head last year; but it also wants to enhance the general options literacy of everybody in foreign exchange. “You must be options literate even if you don’t directly cover it, as hedging activity affects the spot market in unique ways," Siddiqi said.

At JP Morgan Chase, each sales team is supported by a forex derivatives structurer, said London-based head of European forex, Adam Burke. "These structurers are part of the sales team, and spend a lot of time marketing and discussing trades directly with the clients," Burke said. "All our salespeople have a high degree of product expertise in their own right, but structurers provide an extra level of product support and ensure we leverage ideas across the various sales teams."

But whichever approach a bank takes, the provision of creative ideas and in-depth market knowledge is essential to the foreign exchange division. For simple forex transactions, clients are likely to use whichever bank they have the relationship with, "as prices will be pretty much the same", said Drew Bradford, head of FX trading and sales for European institutional clients at Deutsche Bank in London. "But if you’re doing something complex that people are selling differently, you’re going to shop around for the best product – the more complicated it is the more you need to have a closer look," he said.

Other banks that have built options sales desks recently include Bank of America, which hired Eric Ohayon from Lehman Brothers in February to run a new foreign exchange structuring group in London. Lehman Brothers hired Andrew Simon as global head of FX options marketing this month, and Bank One has completely rebuilt its business, hiring six dealers globally since the start of this year.