Best in Germany

Anouch Wilhelms

Commerzbank

With its extensive network of 1,200 branches across Germany, Commerzbank is well placed to win investment product market share via both mass retail and private banking distribution. The bank is also one of the leading providers of leveraged products, sold via the online brokerages to the growing community of self-directed traders.

Commerzbank is one of two giants in the German structured products industry and together with Deutsche Bank often accounts for 45% of trades in any single product category. In a German market that has 900,000 structured products outstanding, Commerzbank alone has in excess of 160,000.

Coupon-generating products have continued to dominate the structured products market this year. One payout that generated strong sales was a Classic Autocall Best Of structure that used Daimler, Siemens and BASF as underlyings and featured a low barrier set at 50%. The note generated a 7.5% coupon.

The bank has also had success with its Factor Certificates, which have been one of the hit products of the year with German online traders and are among the most-traded products on the Stuttgart Stock Exchange. Using these instruments, online investors can trade with a range of constant leverage factors, typically two, four or six. This investor base is more comfortable with short positions than the investment product community, which is heavily biased towards a long viewpoint, and Factor Certificates have done well as both long and short leveraged plays.

One of the characteristics of the German market is the high speed of issuance, since products can be priced, generated and listed instantly and the required regulatory information filed with regulator BaFin. Products are invariably listed in Germany initially, even if they subsequently trade over the counter rather than on-exchange. Commerzbank used this high-speed issuance process to its advantage in May, at a time when the Facebook flotation was high on the agendas of online traders. The day after the social media giant's initial public offering, Commerzbank issued both long and short Factor Certificates on the company, allowing traders to play what became an exceptionally volatile stock.

Single-stock underlyings tend to be concentrated in German blue chips, though a few international stocks have generated a lot of interest in 2012. In addition to Facebook, Apple has often appeared on lists of most heavily traded warrants.

Its heavyweight status in the German market allows Commerzbank to spend heavily on IT infrastructure, including its proprietary OTC platform. Being at the forefont of technology is viewed as an important competitive advantage, and the bank's systems are constantly being re-engineered and upgraded.

The bank has a commitment to market-making OTC with trading hours stretching from 8.00am to 10.00pm. Online trading is conducted both OTC and on-exchange via the big brokerage houses such as Cortal Consors, DAB Bank, sbrokers, and also via Commerzbank's own online brokerage comdirect.

The battle for market share among structured products providers during 2012 has been fought with the help of a range of free-trade and flat-fee promotions. These are expensive for the product providers, and the economies of scale generated by having a very large OTC platform is a competitive edge. For example, in the fourth quarter of 2012 the sbroker platform had a flat-fee offer of €5.95 per order on a range of Commerzbank products, including selected turbos and Factor Certificates. Other Commerzbank promotions running through to the year-end involve DAB Bank, Flatex, ING DiBa, and Cortal Consors.

The bank has also been at the forefront of educating the online trading community in the use of more sophisticated order systems, going beyond traditional order types such as stop-loss. The off-exchange trading platform Lox, which is owned by XCOM, has been offering market-makers programmes such as Fill or Kill and Immediate of Cancel since 2009, and introduced Once Cancel Other and Trailing Stop in late 2010.

The first Lox partner was Deutsche Bank, followed in 2011 by Commerzbank, which now has direct Lox connections set up with nine online brokers. "A growing number of self-directed investors in Germany are utilising intelligent order types, and this use of more sophisticated order types is very important for the future development of the German trading products market," says Anouch Wilhelms, director and products specialist at Commerzbank in Frankfurt.

Making such intelligent order types available is only the first step, and Wilhelms points to the programme of roadshows and seminars arranged by Commerzbank in order to educate the self-directed investor base on how payouts work, and how to put trades on.

In October, the bank's latest Trading Tour was underway across Germany, explaining leveraged products to investors at stops in Hamburg, Hannover, Dusseldorf, Frankfurt, Munich and Berlin.