# Renminbi splurge lifts BNPP, MSIM in Q1 options data

## Counterparty Radar: Morgan Stanley IM is largest options user, following series of huge renminbi calls

Morgan Stanley Investment Management has become the largest user of foreign exchange options among US mutual fund managers, overtaking the long-time holder of that title, Franklin Templeton, in the first quarter of this year and extending a run of options portfolio growth, and decline, for each firm.

In the first quarter of 2020, MSIM was holding $9.7 billion in FX options trades on its books – enough to make it the sector’s fourth-largest options user – while Franklin Templeton had$43.3 billion in trades. MSIM’s book has now ballooned to $26.1 billion, as the Franklin portfolio has almost halved in size to$24 billion.

The emergence of MSIM as the market’s biggest options user has had an impact on the corresponding ranking of options dealers – hoisting its biggest provider, BNP Paribas, almost to the top of the charts, where it now sits just behind Citi. The same one-two dealer pairing also exists for FX forwards and – as was the case for forwards – it reflects the French bank’s ability to capture a bigger share of the biggest trades.

The options rankings are compiled from filings made to the US Securities and Exchange Commission by individual sub-funds. Filings made between January 1 and March 31 were aggregated to create the first-quarter ranking, with each providing a snapshot of positions on the books of the funds (see box: About this data).

All data from the start of 2020 to the end of Q1 2021 is now available to be sorted and analysed via the new Counterparty Radar tool.

### Big in China

BNP Paribas was the counterparty for 30 of the 65 trades MSIM had on its books – all of them calls on the renminbi against the US dollar. Those trades had a combined value of $15.2 billion, representing fully two-thirds of the dealer’s aggregate book with US mutual funds in Q1. Among the options executed between the two firms, the largest single ticket was a whopping$3.2 billion call, set to expire in mid-2022 – that’s roughly 100 times larger than the $35.9 million average size of the 2,585 options on the books of US funds in the first quarter. In total, MSIM had 55 renminbi calls on its books in Q1 – representing 99.98% of the manager’s total position, by value. It’s not known whether the positions are a hedge or a bet. The firm’s other leading counterparties for the renminbi trades were Goldman Sachs and NatWest Markets. Its huge renminbi position hauled MSIM to the top of a number of cuts of data, not just the largest overall share – for the first time since Risk.net started tracking the data, it also finished top of all non-G10 options trades, all Apac non-G10 trades, all trades with a value of more than$250 million, and all trades with a remaining maturity of between three and 12 months. It was far and away the largest call buyer, with its Q1 book making up 57.6% of all trades by value.

Former number one, Franklin Templeton, continues to be the largest options user when the data is cut in other ways – it has the largest number of individual tickets, for example, and is by far the largest user of options on non-G10 Americas currencies; it holds 20% of all trades with a remaining maturity of less than a month, and its book also dominates the market for trades with more than 12 months until maturity, where Franklin trades made up 96% of all outstanding tickets in Q1.

While MSIM and Franklin Templeton, respectively, hold the largest options books in non-G10 Apac and Americas currencies, Invesco leads the way in non-G10 Emea currencies – a smaller market.

Across the five quarters of data now collected, five managers have always appeared in the top six names, albeit in varying order: BlackRock, Franklin Templeton, Invesco, MSIM and PGIM. Last year, Alliance Bernstein and Putnam Investments made short-lived appearances in that group, but the former’s options book has now run off completely, and the latter reported just 54 trades with a total value of $381 million in Q1, down from 338 trades worth$6.5 billion in the third quarter last year.

Other managers have made the opposite journey. Transamerica had a $2 billion book in the first quarter of 2020, but it has grown in every quarter since – now reaching$5.2 billion, enough to make it the sixth-largest options user, and the second-largest for Apac non-G10 currencies. From the second quarter of last year, the options book at Brighthouse Financial has also been growing – taking it from $984 million to$2.5 billion across 57 trades. The firm is the fourth-largest buyer of calls, the largest being a $483 million renminbi/US dollar trade, with BNP Paribas again the dealer. ### Paris calling The French bank’s continued progress is arguably the biggest story on the dealer side of the rankings. In the first quarter last year, BNP Paribas was tenth in the overall table, having executed 120 trades with a total value of$2.9 billion. Subsequent quarters have seen it jump to ninth, then sixth, and then – in Q4 last year – to second, but with an almost-$9 billion gap to the number one dealer, Citi. In the latest batch of data, the gap has shrunk to just$385 million, although the French dealer lags far behind by number of tickets – with 142 to Citi’s 615.

In addition, BNP Paribas now tops a number of the sub-tables for the first time. By value, the bank has a 54% share of all Apac non-G10 trades, 41% of all trades with a value of more than $250 million, and 47% of all sold calls. Selling calls can, of course, be a risky endeavour – in addition to the bank’s 30 renminbi trades with MSIM, it has executed a further 27 trades in the same currency with SunAmerica Asset Management, Transamerica and Brighthouse Financial for a total value of$20.7 billion. These trades are not being hedged with other mutual fund managers, so are presumably offset against some other client activity or in the interdealer market.

Taking on these bigger, riskier trades is one way for non-US banks to grab some business with US managers. NatWest Markets ranks fifth overall in Q1, but does so on the back of just 16 trades. Like BNP Paribas, these are primarily very large, non-G10 trades – in fact, 15 of them are renminbi calls, sold to the same four managers as those executing with the French bank.

Deutsche Bank has a different approach. For first-quarter trades, the bank places second for G10 currencies, and has only a handful of trades with a value of more than $250 million. It ranks sixth for trades with a value of less than$5 million and fifth for those with a remaining maturity of less than one month – many of these short-maturity trades can be executed and roll off between funds’ reporting dates, implying Deutsche’s total business may be larger than the quarterly snapshots show.

Although Deutsche ranks seventh overall, the European bank’s ticket numbers have been shrinking throughout the data series, and Q1 this year saw the bank’s book – as aggregated from the fund filings – at just $4.7 billion, down from a peak of$8.1 billion in the second quarter last year.

HSBC joins BNPP and Deutsche as the only non-US banks to have executed more than 100 tickets with US funds; Barclays, Standard Chartered and UBS are in the dozens, while Credit Suisse has all but vanished in the latest batch of data. In the third quarter last year, US funds recorded 49 trades with the latter, but Credit Suisse was counterparty to only two FX options trades in the Q1 data.

The vast bulk of the market – certainly by ticket numbers – continues to belong to US dealers. The total value of Citi’s trades has slipped from a peak of $37.6 billion in the second quarter last year, but it still has roughly twice the book, by value and tickets, of its closest US rival – Goldman jumped to third in the table in Q1, ahead of Morgan Stanley by virtue of a larger average ticket size. JP Morgan is sixth overall and Bank of America eighth. The dominance of the US banks is clearer when looking at some of the sub-sectors of the market. The five leading dealers collectively have 76% of the total book for trades with a value of less than$5 million, and the same share for trades of between $5 million and$49 million. These five banks, across these two buckets, have executed 1,597 trades – that is 62% of all tickets reported in the first quarter.

The information used in this analysis comes from Nport-P filings to the US Securities and Exchange Commission. This is a relatively new form, introduced at the end of 2019, which requires mutual funds and exchange-traded funds to file monthly summaries of their portfolio holdings to the SEC.

The filings include FX options transactions that were live at the time of the filing, and include details such as bank counterparty names, currencies, trade sizes and remaining maturity. This dataset only represents vanilla options – exotics were excluded.

The forms are filed to the SEC on a monthly basis, and the regulator makes the final filing of each fund’s quarter public 60 days after the end of that period. The filings are in a structured XML form, making it possible to download and parse the data for trends.

The first-quarter 2021 analysis is based on roughly 20,000 individual fund filings with periods ending between January 1 and March 31, 2021. Of these filings, 43 funds were a party to one or more FX options trades, worth a total of \$92.98 billion.

It’s important to caveat the information. While these are pro forma regulatory filings to the SEC and should be accurate, mistakes and miscategorisations do occur. The data was cleaned and obvious errors excluded.

Trades without an identifiable manager made up 0.06% of the total volume, while trades without an identifiable dealer made up 0.54% of total volume.

Ongoing refinement of our data cleaning processes resulted in some very minor changes to data from previous quarters, so numbers in this article may vary slightly from those cited in prior pieces.

Information from these filings is also the basis for a new tool, Counterparty Radar, which allows users to search the filings information themselves to discover the most popular dealers and most active managers for FX forwards and options.

We intend to track these stats every quarter, so please get in touch if something doesn’t look right and needs closer investigation, or to suggest other ways to present or analyse the data: [email protected]

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