Nordic region house of the year: Commerzbank

Command of flow and bespoke products puts bank ahead of the pack

peter olsson
Peter Olsson, Commerzbank

Structured Products Europe Awards 2016

Commerzbank's long history in the Nordic markets is seen as a reflection of its dedication to the region, while its ability to field a broad variety of underlying assets and leverage is considered a standout feature.

"They are one of the few issuers active in four Nordic countries and offer the biggest product range, with more than 5,000 exchange-traded products [ETPs]," says the chief officer at a local market operator. "This, in combination with Commerzbank's strong focus on education of the private investor, is very positive for the Nordic markets."

Commerzbank's dual-pronged approach to running its Nordic structured products business gives it expertise for specific investment needs. The Nordic investment solutions team handles complex products from London, building bespoke solutions as required, while its ETP distribution team operates a flow business from Frankfurt. Both exploit their experience of the region, stretching back more than a decade, to stay ahead of the curve on issuance.

Although it is headquartered in London, the Nordic investment solutions unit has built up considerable local expertise, with native speakers and on-the-ground client communication to stay on top of market and regulatory developments.

"Looking at the Finnish ETP market in 2016, Commerzbank has kept its leading position as an issuer and market-maker," says one local broker. "This can be measured both in terms of overall market share, as well as [in its] broad product scope, which is not really offered by anyone else."

The team is also quick to spot new opportunities: "In Denmark, we were the first to issue products on the big initial public offerings of Dong Energy and Nets Holding, which got a bit of attention in the Danish investment media. We do the same products, but on a different underlying, just with a new strike and maturity, and we try to do it before any of our competitors," says Peter Olsson, country head for Sweden and Norway at Commerzbank.

Like many countries, a desire for products linked to exposure to stocks with low volatility was a strong theme, and Commerzbank's set-up allowed it to put clients into the most advantageous trades. The judges were particularly impressed by the launch of its Solactive Global Ethical Low Volatility AR Index, traded in the Swedish and Finnish markets, which provides lower-cost access to low-volatility indexes than direct investment, while delivering strong performance.

"[The indexes] offer lower risk because they have exposure to the least volatile stocks," says Per Ingvoldstad, managing director and head of Nordic institutional sales at Commerzbank.

"Historically, they tend to give better performance compared to their underlying benchmark, which means again for the investors who are investing in this [that] they will get higher Sharpe ratios," Ingvoldstad adds.

The launch of the Solactive Global Ethical Low Volatility AR Index also allowed Commerzbank to tap into clients' increased desire for sustainable investments, a product class bolstered in the region by the Swedish church, which has openly spoken about its ethical investment policies.

"By coming up with this index ourselves, other banks are unable to offer exactly this type of index, so this is a clear example of being innovative or being ahead of the curve by creating bespoke products for what the clients are actually looking for," he says.

Commerzbank has also tapped into the corporate debt market by offering bond fund call options to investors, allowing them to overcome the liquidity challenge that comes from investing directly in corporate bonds or bond funds, while gaining access to potentially high returns – all while supporting capital protection on clients' investments. These can be both options sold as warrants or certificates as well as options wrapped with bonds, and their construction is predicated on strong relationships with the fund managers who hold the illiquid funds.

While demand for new structured product issuance can be slow in the region, interest in ETPs is surging. To give an idea of the size of this business, when interviewed at 4pm central European time in Sweden, Commerzbank's Olsson said his desk had seen 1,100 trades since 9am. The bank's systems are also developed enough to get a real time picture of those trades throughout the day.

"The listed business is extremely transparent. Of the 1,100 trades today, I can see how many trades and how much turnover came from each respective counterparty; how much were on gold, oil and on Swedish stocks," he says.

The firm's Barrier Equals Strike (Best) variation of the mini-futures already being traded in the Nordic markets is one example of a concept designed to offer investors greater flexibility and higher leverage. These instruments have a single stock, an index future, foreign exchange or a commodity as underlying asset. The Best feature allows the investor to trade the mini future very close to the barrier without being stopped out, allowing them to have greater leverage than is possible with a standard mini-future; these products are also known as unlimited turbos.

In Finland, Commerzbank says Best has become the most traded product type on the market, while the bank has also seen success with standard mini-futures by offering them on a wider range of domestic single stocks than were otherwise available. In Sweden, the Best concept has been mirrored by other competitors, while in Denmark, Commerzbank claims to be the first issuer offering mini-futures.

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