Scroll down for links to all the winners, and click here for the photos.
Sustainability and consistency are not the same thing, but in the world of derivatives market-making, they are linked. A business that is not run sustainably will, in the end, be inconsistent: it will widen its spreads, cut clients, or retreat from some products.
This year's awards provided numerous examples of firms seeking to achieve both – to steady the ship after years of regulatory and pricing upheaval.
At Societe Generale Corporate & Investment Banking (SG CIB), the run-up to the UK's referendum on EU membership was accompanied by a set of unusually specific instructions from senior management and the board: "[They] were not keen on losing a large amount of money on this day, or making a large amount of money. They were focused on being insensitive to event risk," says Bruno Gaussorgues, the bank's global head of market risk.
SG CIB – our bank risk manager of the year – responded by tailoring stress tests to the event, taking into account some unusual specificities – the fact that the vote took place soon after the quarterly expiry of Euro Stoxx options, for example. On the back of this work, it actively reduced negative gamma positions in foreign exchange and interest rates, so it could go into the event with the ability to provide liquidity.
The French bank also sought to make its autocallable products business more resilient. Recent years have seen dealers frantically switching the issuance tap on and off as underlying indexes, such as the Nikkei 225 or the Hang Seng China Enterprises Index have tumbled, forcing simultaneous re-hedging of bank portfolios. Last year, SG CIB responded with a tool that tests the book's resilience to periods of stress, forcing the bank to behave more conservatively.
Sustainability was also a big aim for the equity derivatives business at Bank of America Merrill Lynch last year. As the bank ramped up issuance of retail products in a bid to outmuscle retreating rivals, it built up the usual array of exotic exposures. In the past, traders might have been happy to warehouse such positions – but BAML has built its franchise on intelligently repackaging exposures and selling them on to investors.
Products that accurately mimic the underlying exposures from dealers' structured products books are in short supply, but BAML invented a new one in late 2015, allowing it to quickly hedge 50% of its Korean autocallable book by selling clips to institutional investors, and freeing it up to keep writing new business.
Sustainability is a familiar theme for this year's lifetime achievement award winner, Yann Gérardin. He built the equity options desk from scratch at Banque Nationale de Paris in the 1980s, and had turned BNP Paribas into one of the leading equity derivatives franchises in the world by 2008. When the crisis struck, Gérardin realised earlier than many of his peers that the business model would have to change, as regulators piled on new capital requirements for market risk. He cut the business's balance sheet and funding usage, and by 2012 was ready to begin taking market share again just when other banks were exiting the equity derivatives business.
In the rates market, where the derivatives world's leviathans need to execute huge, regular flows as well as one-off jumbo trades, clients have always prized consistency, but have not always been able to find it. Citi and Goldman Sachs were both lauded for their reliability here.
Along with wins in credit derivatives and over-the-counter derivatives clearing, the steady ascent of Citi's rates business was enough to make it Risk's derivatives house of the year for the second time in succession – a rare feat.
Consistency – and calmness in the face of a storm – were attributes LCH, this year's clearing house of the year, wore as a badge of pride in 2016. The central counterparty (CCP) stuck to its guns during the market maelstrom – and attendant large margin calls – that followed the UK's shock vote to leave the EU back in June, refusing to expose its members to undue risk by extending credit or permitting the ad hoc netting of client margin calls, as other CCPs chose to. Its safety-first approach angered some – but faced with the same situation, LCH would make the same calls again, it says: predictability is the bedrock of its place in the market.
This year's quant of the year, Jean-Philippe Bouchaud, has also made a career out of doing things the hard way. The Paris-born physicist, chairman and head of research at France's Capital Fund Management, eschews popular finance theory, preferring to immerse himself in hard data to get a real-world view of what is going on in the markets around him.
"It is really more of a physics approach, to let the data speak," says Bouchaud. "Very often, many economic theories – such as the principle of efficient markets – seem to be more inspired by some kind of underlying political agenda than a strict understanding of what is going on in the markets. Similarly, a lot of models used in mathematical finance seem to be more driven by their convenience and the possibility to answer a question with a number, rather than taking the time and thinking about the problem."
As always, picking the winners was extremely difficult. Risk asked candidates to submit detailed information on their businesses, and shortlisted firms underwent face-to-face and telephone interviews. Risk then gathered feedback from clients and other market participants.
The final decisions were made by Risk's editors and journalists, weighing a number of factors, including risk management, creativity and innovation, liquidity provision, quality of service and customer satisfaction, and engagement with regulatory issues.
Where decisions were tight, client feedback often helped settle the issue. The Risk editorial team thanks all this year's participants for their time and help.
The profiles of our winners can be found below.