Market-maker of the year: Deutsche Bank

Asia Risk Awards 2020

Ashok Das
Ashok Kumar Das, Deutsche Bank

On March 26, the Indonesian Composite Index jumped up by 10% in one day, the biggest one-day move since the Asian Financial Crisis in 1999 and part of a broader Asia-Pacific rebound following news that the US Senate had passed a $2 trillion coronavirus stimulus package into law. But that still left the Jakarta benchmark 20% down on the year, as countries in the region reeled from the pandemic which tested banks’ systems, people, trading capability and risk appetite to the limit during March, April and May.

It was a test that Deutsche Bank’s market-makers passed with ease. The firm shifted almost 100% of its trading activity to a work-from-home basis almost immediately, while its ability to price and take risk even during the most stressed times saw it build on its market share and clinch this year’s award.

“Deutsche Bank was able to continue providing prices and make markets throughout this period, whether that be at times of heightened market volatility, or unscheduled holidays. Even on traditionally illiquid products like synthetic notes, long-dated cross-currency swaps or structured products, while the market volume shrunk during this period, we continued to provide 24x5 prices for all our clients,” says Ashok Kumar Das, head of Asia local markets trading and solutions.

“This ability to provide continuous liquidity to clients across the spectrum of products was clearly of extreme benefit to clients and we gained market share.”

Das may be based in Singapore but his team are not. Deutsche Bank has been trading in Asia-Pacific since it was an infant. Founded in Berlin in 1870, by 1872 the lender had set up branches in the trading hubs of Shanghai and Yokohama. Today this presence spans 14 local Asian markets where the German bank has had boots on the ground for an average of 40 years. According to Das this means it’s a market-makers across-the-broad spread of asset class across both cash and derivatives throughout Asia-Pacific.

“Our core strength is we operate in all the local markets with full suite of fixed-income products and can facilitate both local and cross-border activities for clients. Being an international European bank operating across 14 Asian local markets means we can facilitate both our local and international clients, provide local market access to international clients and international markets access to local clients, ” says Das.

One example of this is the local markets treasury solutions (LMTS) group, which the bank set up in 2018 to provide clients access to onshore and offshore Asian markets. Clients can use LMTS to access structured solutions, as well as providing synthetic access to Asian bond markets. This is done via total return swaps and credit-linked notes, as well as a full suite of Asia FX and rates derivatives products. The group operates across a number of Asian currencies 24 hours a day, through the working week, out of centres in London, New York and Singapore.

During the height of the pandemic’s impact on Asian markets, lenders faced not just a sudden illiquid price shock but also how to deal with the issue of an increased global demand for US dollars, which forced them to cut their available balance sheet. Deutsche Bank, on the other hand, was able to continue to provide liquidity on Asian markets using LMTS. Its clients sold more than $500 million of synthetic notes, $1 billion of total return swaps and credit-linked notes across a range of Asian currencies during the period of what Neepesh Thacker, co-head of the firm’s institutional client group macro sales emerging markets Asia, says was a very high stress period.

“In March alone there were emerging market Asia outflows of $54 billion, of which the vast majority haven’t returned yet. Taking Indonesian bonds as an example, given the weightings in the benchmarks that a lot of international clients follow, we estimate up to $10 billion left the market in a three-month period, which is a huge amount in what was relatively thin liquidity. We were able to facilitate flows in bonds, forex and derivatives, as we have the ability to complete the circle of risk given the diversity of our client base – both in terms of geography and client type,” Thacker says.

In 2019, Deutsche set up the integrated franchise trading group to bring currency traders from local markets and offshore trading hubs in Singapore, Hong Kong, London and New York together so global firms can access currencies such as the ringgit and rupiah to global investors. So far in 2020 Deutsche Bank has traded $15 billion of onshore local currencies in London and New York. But according to Das, Deutsche’s market-making capabilities are far from an overnight success story.

“The success of our platform during the pandemic is not the result of work done in the last three or four months but was instead built over decades,” he says. “The business was set up to withstand these kind of shocks and it has been resilient across risk management, market-making, client management, operations and settlement; in other words, the full spectrum of the bank. That’s why we have been able to cope so well with the impact of coronavirus.”

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