The ability to provide liquidity on exchange-traded products in times of extreme market stress combined with an expanded exchange-traded fund (ETF) product offering sees Commerzbank take out the ETF House of the Year award for the second year running. The bank's Hong Kong ETF desk now offers liquidity on more than 200 ETFs across seven Asian markets in addition to pricing over a thousand European and US listed ETFs during Asian hours.
It was this ability to provide liquidity during periods of extreme market movement that garnered praise from clients, setting it apart from competitors. In the aftermath of the UK's decision to leave the European Union (Brexit), global financial markets tumbled, with trading during the following morning in Asia (June 25) particularly volatile.
Antoine de Saint Vaulry, head of ETFs and flow trading for Asia at Commerzbank in Hong Kong, says the bank was able to keep spreads more or less unchanged despite the huge volume and various trading and hedging needs.
"Although it wasn't our best day in terms of profits, we managed to make money that particular day, whereas some of our competitors left the market entirely, waiting for prices to go up and for markets to stabilise," he says.
This was appreciated by clients who praised Commerzbank for its level of service during periods of market stress.
"We view them as one of the best full-service liquidity providers locally and globally. During Brexit they were a very reactive partner providing adequate liquidity across all our Hong Kong and Australian ETFs despite the market uncertainty, as it was out-of-market-hours in Europe. Our ETFs fared well during Brexit by relying on partners such as Commerzbank and other liquidity providers," says a Hong Kong-based senior executive at a US ETF provider.
In addition to building on its market-making success in the region, the bank has also listed two new ETFs on the Hong Kong Exchange (HKEx) in May – the first Hong Kong-listed products to offer exposure to German equities. Although the products have not achieved the success hoped for given tougher market conditions, de Saint Vaulry says it shows the bank's commitment to widening the range of ETFs available to investors.
"The product offers exposure to German indexes that were not previously available in Hong Kong for investors to trade on and is one more brick in the ETF landscape in Asia," he says.
Commerzbank is currently the largest ETF market-maker on HKEx, providing liquidity for 118 out of 169 listed ETFs, almost 50% more than its nearest competitor. It is also a designated market-maker on the Singapore and Thai exchanges, and quotes onscreen prices for ETFs listed in Japan, Australia, South Korea and Taiwan.
De Saint Vaulry says the bank is contacted for almost all new listings of ETFs in Hong Kong and Singapore and has also worked to improve liquidity on existing ETFs. For example, a Taiwanese issuer recently contacted Commerzbank to improve onscreen liquidity for one of its ETFs.
"They had trouble finding a market-maker for their Eurostoxx ETFs because the Eurostoxx is not hedgable during Asian hours. We cover multiple ETFs so we have a fairly good idea of the price of Eurostoxx during Asian hours as we trade dozens of European underlying ETFs," he says.
When Samsung Asset Management launched seven new ETFs – including a suite of four leveraged and inverse ETFs – on the HKEx, Commerzbank acted as one of the two official market-makers. A senior executive at Samsung Asset Management in Seoul says the firm chose Commerzbank because of its expertise in dealing with inverse and leveraged products.
"Not everyone can be a market-maker for leveraged and inverse ETFs. The regulators wanted seasoned market-makers with overseas experience as these products are new to the market. Although they are not our only market-makers, they are definitely one of the best," he says.
The week on Risk.net, December 2–8, 2017Receive this by email