Dealer Rankings 2014: Cleared for take-off?

**The results of the dealer rankings poll and the associated feature are protected under copyright laws. Reproduction of the feature and/or the poll results, for either internal or external distribution, is strictly prohibited without the prior written permission of Total Derivatives.**

For information on reprints of the rankings, and permission to reproduce the results in any form, please contact Chrishan Tailor chrishan.tailor@totalderivatives.com or call +44 (0)20 7779 8537.


Dealer Rankings 2014: Cleared for take-off?
Low rates, flat curves and falling volatility continue to subdue interest rate derivatives trading. Simultaneously, tighter regulation and an ever-growing list of ‘valuation adjustments’ are making pricing increasingly complex. For the last few years the rule has been: if it’s a three-letter abbreviation then it’s going to take a lot of dealers’ time, money and effort.

One welcome development is that the largest adjustment, CVA, has probably fallen down the list of concerns given tighter credit spreads, better hedging and reduced uncollateralised exposure. But the problems around CSAs, the need to reduce RWAs, the SLR (the US supplementary leverage ratio), differential CCP pricing and FVA are still floating around in the mix.

To take JPMorgan as an example, the leading broker-dealer came first in the 2014 Total Derivatives Dealer Rankings for USD swaps, USD options and USD inflation trading. However, low market volatility and reduced client activity still dragged its revenues down by double digits over the last year according to its second quarter results. As for the impact of the alphabet soup, the bank suddenly gained more than $100bn in Basel III RWAs solely from model and data changes even as average VaR fell slightly. FVA/DVA was a brighter spot for the bank, with the valuation adjustments adding more than $100m to revenues over the first six months of the year net of hedges. But these gains followed JPMorgan’s hefty $1.5bn charge for FVA at the end of 2013.

On a macro view, the dealers may be able to look forward to higher rates in the US and UK over the coming twelve months. However, the Eurozone and Japan look a long, long way away from moving rates back to more normal levels. Frothy valuations in areas of the global property, credit and equity markets and geopolitical tensions may even pose a threat to growth in the stronger regions.

Dealers (and their clients) will have to cope with more clearing as EMIR arrives in Europe and swaptions and inflation join the list of eligible products. Regulatory targets for capital and leverage ratios will edge closer, as will the deadlines for initial margin on uncleared trades. (L)IBOR reform will advance, possibly fragmenting the market. Cross-border regulatory differences will continue to have unintended consequences for market structure and liquidity. Technology and overcapacity will continue to squeeze the brokers. And capital valuation adjustment (called KVA, presumably because CVA was already taken) may become the latest valuation adjustment to be added to the alphabet soup. No wonder, perhaps, that the latest Total Derivatives rankings hint at a further concentration of derivatives trading among a short list of 5-6 global names plus 2-3 strong regional players in each market.


The results
Total Derivatives’ rankings are the most comprehensive peer review of banks’ performance in interest rate derivatives. There were 848 individual responses to the latest survey registering a total of over 2,500 votes. Experienced professionals involved in trading, sales and marketing, structuring and strategy at investment banks formed the largest group of respondents, with portfolio managers also taking part.

Voters are asked to rank the top three dealers (other than their own bank) based on reliability of market-making, keenness of pricing, depth of liquidity provision, speed of execution, access to e-trading platforms, efficiency of post-trade processing and product innovation. Banks are ranked in dollars, euro, yen and sterling. Product categories include two year to 10 year interest rate swaps, 10 year to 50 year interest rate swaps, inflation (cash and derivatives), vanilla and exotic interest rate options and, for the first time, interest rate structured MTNs in dollars and euros.

The 2014 Total Derivatives Dealer Rankings found JPMorgan taking first overall once again for global trading across all four products: swaps, volatility, inflation and structured notes. Deutsche Bank and Barclays tied for global second place, while Citigroup and BNP Paribas took fourth and fifth place, respectively.

By market, JPMorgan was first for USD derivatives while Deutsche Bank was first for EUR derivatives. Barclays was first in GBP derivatives and second in EUR. In Asia, Mitsubishi UFJ was first in JPY derivatives.

Across products, Barclays was first in global inflation ahead of JPMorgan and Citigroup. JPMorgan kept its lead in global options, with Deutsche Bank second and Morgan Stanley third. However, Morgan Stanley was first for interest rate structured MTNs with Goldman Sachs second.

Looking by market and product, JPMorgan easily held the top slot for USD IRS trading for both the 2-10 year and 10-50 year buckets ahead of Deutsche Bank, Citigroup and BAML. It was also first in USD options ahead of Morgan Stanley, Deutsche Bank and Goldman Sachs. USD inflation was also taken by JPMorgan, with Citigroup second and Barclays third.

In EUR, Deutsche Bank retained first place for EUR 2-10 year swaps and exotic options trading, while the bank also moved up to first for EUR 10-50 year swaps. JP Morgan remained first for vanilla options trading, and Barclays retained the top slot for EUR inflation, narrowly ahead of Deutsche Bank and BNP Paribas. Still, BNP Paribas took first place for EUR interest rate structured MTNs, with Deutsche Bank in second and Goldman Sachs third.

In GBP interest rate derivatives, RBS remained top for 10-50y IRS but Barclays moved back up to first for sterling options, inflation and shorted-dated swaps, ahead of RBS. A range of banks vied for third position across sterling products including HSBC (inflation), Lloyds (swaps) and Deutsche Bank (options).

Finally, JPY swaps and options saw Mitsubishi UFJ, Nomura and Mizuho fight for the top three places, with Nomura and Mitsubishi UFJ first in swaps.

For information on reprints of the rankings, and permission to reproduce the results in any form, please contact Chrishan Tailor chrishan.tailor@totalderivatives.com or call +44 (0)20 7779 8537.