European banks report decline in equity derivatives volumes

Despite another surge in implied volatility this month, the European equity derivatives business has seen a decline in volumes in 2002, say dealers. Implied volatility on the FTSE reached a high of 39.5% this month, compared with the average daily figure of 24% in June, itself significantly above the average for this time of the year. Implied volatility is now only 4% below the level it reached during the Long Term Capital Management (LTCM) crisis in 1998.

Société Générale, one of the major players in the European equity derivatives markets, said client-driven equity derivatives business is near its worst levels. “End-users are almost gone. The only flows to have really survived are from interbank activity,” said Fabien Hajjar, Paris-based head of European volatility trading in equity options at Société Générale.

Most of the current business, particularly in the warrant market, has come from in and out trades conducted on an intraday basis, Hajjar

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