Equity derivatives house of the year - UBS

Asia Awards 2007

The volume of structured products sold in Asia in 2007 called for a bank that was quick at pricing and innovating, and smart enough to keep up with the underlying themes that have dominated the business. That bank also had to invest in technology to cater for the turn in a market characterised by a massive flow business. That bank was UBS.

"In some markets, we have seen volumes increase by as much as tenfold this year," says Min Park, head of equity risk management products, Asia at UBS. Kenneth Pang, head of equity derivatives trading in UBS's Hong Kong office, adds: "The biggest thing for us in 2007 was volume and the development of the flow business of structured products."

To get flow products to the market as quickly as possible, the bank invested in technology and systems to allow its private bankers to develop and customise products. "Technology has been the key differentiator this year in Asia," says Chris Lee of UBS in Hong Kong. "Ours has given sales people the chance to price products on the fly."

The flow revolved around two accumulators and range accrual notes - both of which were considered relatively sophisticated only a few years ago. "We have all these different, new innovations, but for the majority of our trades, it is mostly the same thing with a small variation," says Pang.

UBS adapted the main flow products to meet the needs of its clients. "This year we have been trying to add a slight twist to the callable daily range accrual notes to enhance the product based on an investor's view of it," says Patricia Lau, head of the Hong Kong retail team.

The enhancement came in three forms: a bear market protection variation, which includes a resettable accrual and callable barriers based on the performance of a broad market index; a bull market variation - the ratchet daily range accrual note - which allows coupons to be adjusted higher at each observation if all the shares close at or above the accrual barrier; and a variety that was designed to counter short-term market volatility. "We have devised a digital coupon range accrual note at exactly the same price as the range accrual note," says Lau.

The twist for the last of the three - the best of range accrual and digital coupon structure - pays a full coupon for a given period as long as the percentage of days that all the stocks close at or above their accrual barrier is more than 50%; if the criteria is not satisfied, investors receive the normal accrual coupon.

The bank also introduced the multi-asset rotator yield enhancing strategy, designed in March as a solution to distributor Citi's search for an alternative investment that would offer investors exposure to multiple asset classes through a single product, which would also maximise income under different types of market conditions via a dynamic asset allocation mechanism while protecting principal at maturity. "This uses CPPI to rebalance the assets between the strategy and cash, using a technical indicator (which incorporates a short-term and long-term moving average) to decide whether to go bullish or bearish in the asset classes," says Lau.

Other distributors picked out UBS as one of the most aggressive flow traders, proactive in showing ideas and most responsive when it comes to pricing. In a year when it was acknowledged that the flow business is a dominant feature, UBS was widely lauded for its service provision as well as its pricing - two aspects that almost always lead to repeat business.

Distributors were also quick to praise UBS for generating ideas and tailor-made products. The bank is "creative, competitive in pricing, and the performance of its products has been very good, with more than 70% of the notes including an early call," says a Singapore-based distributor who also highlighted service and turnaround time as excellent. Another, Shanghai-based, distributor approved of the high percentage of early calls and the double-digit coupons that came along with them.

Acclaim was also earned for the first non-principal-protected structured note in China adopting the climate change theme linked to UBS tailor-made index baskets, which a Chinese distributor bought in April. UBS's presence in China, which is of huge importance when doing business in Asia, was also notable for a strategy-based dynamic portfolio product adopting UBS Rada (risk-adjusted dynamic alpha) - the first introduction to China of a short mechanism in a structured product to hedge risk.

Further success came from using the IPOX index, which gives access to new IPOs from all over the world, especially Asia and China, and is packaged as a dynamic alpha strategy in the form of a fund. "We had a short period of exclusivity with the index sponsor," says Lau. "We added a risk indicator allowing investors to go long or short or into cash.