Nomura plans more hires in equity derivatives, eyes China

Unit head also sees potential in Hong Kong listed market and in demand for bespoke products

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Nomura has been on a hiring spree as it fights for a larger share of Asia’s fiercely contested structured products market. And it has no plans to stop: more hires and a push into China are on the cards for 2019.

This year the bank intends to recruit between five and 15 structuring and solution sales specialists in Asia ex-Japan, says Rob Webb, who heads Nomura’s equity products unit in the region. The unit has already added 20 staff, mostly traders, in the past 12 months.

One of Webb’s goals is to offer more Chinese and Hong Kong equity products.

“If you ask me where I am focused on building out our capabilities in terms of product in the region, China is obviously a big piece of that,” Webb tells Risk.net. “I think there is going to be a growing structured products business there. At the moment it is 70% retail in equities there, and that is very different to other markets where it is more like 30% retail. That means simple products and simple access will work well to start with.”

Nomura can rely on some major tailwinds.

From 2020, China will effectively prohibit the distribution of traditional wealth management products that carry an assumed guarantee against loss and are popular with local investors. This makes structured products – a market that is more open to foreign banks – an attractive alternative for investors and, despite a recent wobble, many in the market predict an upswing in their volumes over the next year or two.   

What’s more, in April 2018 the Chinese authorities raised the ceiling for foreign ownership of joint venture fund management companies to 51% from 49%, allowing foreigners a controlling stake in any partnership and eventually full ownership. This gives foreign banks the opportunity to gain a firmer footing in the country’s structured products market.

Previously, global banks were limited in the ways they could offer structured products in China. In what is a typical arrangement, Nomura currently distributes products to mainland investors through independent onshore entities under the Qualified Domestic Institutional Investor scheme, which comes with certain restrictions.

[The CBBCs market] is big and it’s still growing. So we don’t have to reinvent the wheel to take some market share there
Rob Webb, Nomura

But in May the bank applied for authorisation to set up a securities joint venture in China, with a 51% stake. The China Securities Regulatory Commission is still considering the application.

Nomura said at the time that the new company would first focus on providing wealth management services to affluent individuals in China.

“Nomura plans to then develop its product distribution channels and expand into wholesale and other business segments, with the ultimate goal of growing the business into a full-fledged brokerage,” it added.

In Hong Kong, Webb sees an opportunity in the territory’s burgeoning market for listed structured products such as warrants and callable bull and bear certificates (CBBCs). Investment in CBBCs in Hong Kong surged to a three-year high in 2018, making it easier for a less established equity derivatives house such as Nomura to gain a foothold in the market.

“[The market] is big and it’s still growing,” Webb says. “So we don’t have to reinvent the wheel to take some market share there.”

Nomura has recruited about 20 technology staff to process the flows from such businesses, he adds.

For its front-office hires, Nomura has poached from some of Asia’s leading derivatives houses.

Jean-Baptiste Patois switched over from Credit Suisse in November to become Nomura’s head of equity derivatives trading in Asia ex-Japan. Renaud Goscei, the bank’s new head of delta one trading in the region, joined the same month from Societe Generale. Fayez El Hicheri joined in January as head of what the bank calls quantitative index strategies (QIS) and fund derivatives structuring in Asia ex-Japan. He was previously with Credit Suisse as head of investment solutions structuring. 

Nomura has also tapped Bank of America Merrill Lynch, appointing Manish Ghia as head of prime finance for Asia ex-Japan. Ghia had headed the equity synthetics and securities lending desk at the US bank and started at Nomura in December.

“We had a very small client footprint on the Asian ex-Japan equity product side, and some rebuilding was required in terms of trading expertise,” says Webb, who was himself brought in from Citigroup in 2017. “The first thing we did was build out the trading platform, adding new front-office heads. Around 80% of that has been across delta one and derivatives trading, and we’ve also added to our sales resources in QIS and multi-strategy [offering].”

Opportunity in crisis

It hasn’t been the easiest of starts for the newly assembled team. Volatility and steep falls in global stocks weighed on the revenues of all structured products houses in 2018.

Nomura latest earnings report, covering the July-September period, states that net equities revenues declined 6% year-on-year across the group, noting that derivatives revenues declined in Asia ex-Japan.

Webb is unperturbed, though, saying it takes three to five years to build out an equity products business and a solid customer base. In that period, market cycles are inevitable and the recent turbulence could actually play to one of Nomura’s traditional strengths as an investment bank – its solutions business, he adds.

“When times are tough, it also gives you an opportunity to build relationships in a way that you cannot do in other times because, in some ways, when they’re in a stressed situation, clients need more help.”

Nomura can also take advantage of robust demand for Asian underlyings from its US clients and its existing strength in credit and macro business in Asia ex-Japan, in equities in Japan and in derivatives in the US, Webb says.

The bank’s ultimate hope is to become a top-five Asian counterparty for clients.

“My challenge right now is to start selling more Asia ex-Japan products to Asia ex-Japan clients, and probably start exporting a bit more too,” says Webb. “We haven’t been relevant in this product for a long time, so it takes time to build credibility”.

Update, January 23, 2019: The story has been updated with the name of Nomura’s new head of delta one trading in Asia ex-Japan.  

Editing by Olesya Dmitracova

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