Derivatives house of the year, Australia: UBS

Risk Asia Awards 2025

Matthew Campbell, UBS

In a year that has seen markets around the world rocked by US tariffs-related volatility, UBS’s structuring prowess has helped its Australian clients navigate the fallout.

“Situations like the one we had in April reinforce the importance of the long-standing relationships we have with our clients,” says Stuart Trueman, head of equity derivatives distribution, Australia. “We can pick up the phone, have direct discussions with them, and structure the appropriate solutions.”

One example is a cross-corridor variance swap strategy executed for a superannuation fund client that was looking to balance its risk profile across geographies and sectors amid the recent geopolitical and macroeconomic instability. This solution was applied to a dispersion basket consisting of financial assets across Europe, the US and Asia-Pacific – broadly mirroring what the client had in its equity portfolio.

Stuart Trueman, UBS

A cross-corridor variance dispersion is a type of dispersion trade that combines the features of a corridor variance swap. Volatility accrues only within pre-specified corridors and is combined with dispersion, which means the investor is going long single stock variance and short index variance. The ‘cross-corridor’ element means that the two sides of the trade – each pair of index and single stock variance component – have same corridor ranges based on a single stock price, so that each side is ‘active’ together.

For UBS, the single stock leg in the cross-corridor variance dispersion swap also assists the bank in recycling the vega inventory accumulated from autocallable issuance.

This kind of strategy is suited to markets where certain sectors exhibit higher or lower volatility compared with others, allowing traders to exploit these differences for higher risk-adjusted returns. Since the strategy involves multiple sectors and geographies, it can provide important diversification benefits as well, allowing the client to mitigate country and sector-specific risks in its portfolio.

The challenge for many buy-side clients in implementing a strategy like this is that it requires them to have a deep understanding of the volatility dynamics of each sector and the ability to manage the risks associated with trading derivatives contracts.

This superannuation fund was relatively sophisticated, having internalised much of its investment management over the years. Nonetheless, UBS still wanted to make the transition as simple and as easy to execute as possible.

Rita Elkazzi, UBS

“As an investment bank, we have very sophisticated risk systems, but we were cognisant that the overlay manager, with whom we traded this, has specific implementation and execution requirements,” says Trueman.

Accordingly, UBS wrapped this trade into a single swap format, setting up a bespoke basket that ticks in Bloomberg.

“This provides the client with the level of risk attribution they require, while allowing them to execute the transaction in a format that is consistent with their system setup,” says Trueman.

He adds that it would not have been possible to deliver this solution if the investment bank had not already formed a strategic partnership with the client, since a great deal of work was involved on both sides before everything could be put in place.

“With this kind of trade, we needed to have a deep understanding of the risk appetite and the portfolio structure of our client, coupled with the interaction with our own risk requirements within the investment bank,” Trueman says. “It was also very important to make this solution scalable, so that as the client’s portfolio increases they can maintain a proportional allocation to their dispersion basket. None of this could have been achieved without the robust strategic partnership we have established.”

Rapid response

Another advantage that UBS was able to demonstrate this year has been the ability to respond quickly to rapidly changing market conditions.

“We had to be prepared to implement solutions before they are needed, because by the time a market event occurs it will be too late to get everything ready,” says Trueman.

Earlier this year, one of UBS’s high net worth clients in Australia was looking to lock in a defined exit price for an existing concentrated equity position, taking advantage of prevailing market volatility.

The proposed solution was a zero-cost, knock-out forward whereby, at maturity, the structure would redeem at a meaningful increase to the share price. In the event the share price traded at or below the knock-in barrier, the structure would terminate prior to the scheduled maturity, with the client retaining their holding.

Rita Elkazzi, head of execution sales Australia/New Zealand, says: “This gave the client a little bit of certainty, which allowed them to introduce diversification to other aspects of their portfolio.” 

Shaun Nicholls, executive director, equity derivatives structuring in Australia, says the key to offering this solution was UBS’s Structured Options Lending Facility. This is an offering document that allows UBS to quickly issue combined options strategies and lending solutions within a single framework.

“This is a very flexible facility in which we can offer a variety of transactions depending upon the market conditions at the time,” says Nicholls. “This solution was a tailoring and a repackaging of a slightly different pay-off, but the core documentation was already in place, so all we had to do was roll out the term-sheet from there.”

Trueman predicts that the ability to move rapidly, and to maintain strategic relationships with clients, will continue to be vital in the months ahead.

Matthew Campbell, head of derivatives & solutions, Australia/New Zealand says: “This year has witnessed geopolitically, thematic and macro-driven events. Whether we are dealing with sovereign wealth funds, superannuation funds, overlay fund managers, asset managers, hedge funds, private wealth managers – they all require solutions that capitalise on the prevailing market conditions, liquidity and volatility.”