Wed, 26/03/2014 - 13:39
BNP Paribas has a global ETF market making operation with trading desks in London, New York and Hong Kong, all of which are part of the bank’s wider Delta One business.
“Since 2012 we’ve made strong investment in this area of the business and built out our capabilities to approach more clients globally. We can now support multi asset classes and regions,” explains Tom Weber, ETF sales trader at BNP Paribas.
Specifically within Asia Pacific BNP Paribas has a number of key clients that trade ETFs with it, Hong Kong, Singapore and Japan being a few core markets where it engages in market making activity.
“The team in Hong Kong has very good contacts with ETF providers. Combined with other business we’ve been doing with some of the bank’s clients the team has noticed growing interest in ETFs from Asian clients,” says Weber.
This does not mean purely supporting Asia-listed ETFs for which investors may require liquidity but also globally listed ETFs that are tracking Asia Pacific indices.
“With the investment we’ve made over the last two years we now have one global sales team sharing information. Our Delta One trading desks work closely together to support clients using ETFs. It’s important that we can provide clients with the ability to execute ETFs for them across the globe at attractive pricing regardless of whether it is a European ETF or one listed in Japan for example,” comments Adil El Batji, Head of Forward Trading, Europe.
Providing liquidity at the best price is the primary function of any ETF market maker. To do this effectively across asset classes and ETF providers requires strong investment in infrastructure and bringing the right teams together.
As Weber explains: “Being part of the wider Delta One business is beneficial to us as we can leverage derivative positions for better ETF prices. For example, if we have an exposure to an index that we know a client is also interested in, we can then offer them attractive entry levels at that point.”
Having a strong derivatives heritage also puts BNP Paribas in a good position, especially when it comes to providing liquidity to ETFs in less established markets. Pricing a EURO STOXX 50 ETF is straightforward enough but not necessarily an ETF that is tracking an index such as MSCI Pacific ex-Japan.
“For us it’s all about knowing the markets and underlyings and how best to access those markets and trade those underlyings – that’s where our expertise plays an important role.
“As an ETF market maker, having that expertise is not something that can be built up quickly. You need traders who can effectively price these markets and the IT infrastructure to deliver fast, efficient pricing solutions.”
Indeed, the last thing someone wants are large spreads when entering or exiting an ETF tracking Thailand, for example, as a short-term tactical play because it will have a drag on performance.
“What is critical to being a good ETF market maker is reliability,” says Weber. “Someone you can trust to be there and provide liquidity even when markets become volatile. It’s fine in bull markets but as soon as markets start to wobble you see people widening their spreads and maybe pulling out of certain products altogether. It’s about building trust with clients and this is certainly well appreciated when markets get difficult.”
On winning the award this year, El Batji (pictured) comments: “We are very proud to have won this award, which is testament to the team’s hard work and dedication. We hope to continue this growth and success into 2014. Thank you for the recognition.”
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