Commerzbank has maintained a market-leading position in Nordic structured products over the past year, with a broader and more diverse product range than many of its local competitors. During times of high market volatility, the bank has remained active in the region and retained the support of its clients by delivering tight and consistent pricing.
"Commerzbank maintains a very high standard in its products. In its market-making role, Commerzbank's attention to maintaining prices in the bid and offer has been very good over a wide spectrum of products," says Nuutti Hartikainen, head of securities brokerage in Finland at mini-futures brokerage Nordnet.
Commerzbank has been active in structured products in Sweden since 2001 and launched similar businesses in Finland in 2006 and Norway in 2011.
By volume of turnover in listed derivatives, Commerzbank has a leading market share of 35% in Nasdaq/OMX Helsinki and NDX Finland, according to data from Nordnet. The bank is trailed by Nordea and Citi, which each have a market share of roughly 25%.
The past year has not been an easy one for structured products, however, with low interest rates and tightening credit spreads continuing to make it difficult to find yield. Commerzbank itself was downgraded by rating agency Standard & Poor's from A– to BBB+ in June 2015. While the downgrade did not affect its operations in Norway and Finland, it did have an impact on its Swedish retail distribution arm, which operates on a platform that accepts only firms rated A– or higher.
The consequences of the downgrade resulted in a refocus on the institutional business in Sweden, where Commerzbank currently has 60 active clients, including pension funds and asset managers. That institutional business continues to demand strong trading and structuring capabilities, says Peter Olsson, country head for Sweden and Norway at Commerzbank in Frankfurt. Olsson confirms that the retail component of Swedish business has been suspended as a result of the downgrade, specifically the segment that is publicly distributed, such as retail notes and certificates. He says that while retail distribution forms part of the bank's business in Sweden, it is not "a massive part".
"What has been really topical in the past year are bull/bear certificates and mini-futures referencing the Dax and OMX indexes. The Commerzbank Bull & Bear certificates offer a daily leverage of up to 12 times on the indexes, while the Mini Futures Best possess a knockout feature that provides an even higher level of leverage," says Olsson.
The Mini Futures Best product is a more flexible, leveraged version of the popular vanilla mini-future. This variation has attracted increasing turnover across the Nordic region this year and prompted competitors to launch similar offerings. The Best product also extends to precious metals, single stocks and currencies as underlyings.
With a classic mini-future, the financing level is equal to the strike, and the knockout barrier is a few points away from that, Olsson explains. In the Best product these two levels are equal, so instead of charting the difference between them, Commerzbank charges a margin on the swap. The product has become popular among day traders, who can gain higher leverage than they could with the corresponding mini-future.
"If we look at any financing level, the Best will last longer in the market than the corresponding classic mini-future because they do not have a knockout barrier equal to the strike. It has been very popular," says Olsson.
The highlight for 2015 has been the launch of Commerzbank's DJSI Ethical Europe Low Volatility Index, which attracted significant interest and investment from investors in the Nordic region. The index combines two timely themes - demand for low volatility indexes and sustainable, ethical investments. The new index offers a cheaper alternative to taking direct exposure to the benchmark indexes themselves.
Commerzbank has been among the first to adopt index-linked structures, according to an official at a Danish bank, who finds such structures work well because they allow bond issuers to source low option prices, which enables them to create products in the principal-protected space.
It is also dominant in fund-linked securities. "Commerzbank is competitive in price on hedge fund-linked structures and in the top three in terms of activity related to new fund underlyings," says the official.
The bank won the support of the head of structured finance at a Swedish investment bank for its service provision in this area. His bank has been working with Commerzbank for a decade, but it has built a stronger relationship in options and derivatives over the past three years. "We find the flexibility of the platform very suitable for our proprietary activities and we have a good dialogue with them on algorithmic pricing," he says.
The week on Risk.net, September 8-14, 2018Receive this by email