BNP Paribas has taken a methodical approach to building up the ABS and CLO trading desk over recent years, growing it alongside the primary markets business in a manner that reassures investors that it is committed to the market.
“We’ve grown hand-in-hand with the primary business and only added products that we know we can trade on a constant basis and for which we can always provide liquidity,” says Mehdi Kashani, head of ABS and CLO trading at BNP Paribas. “We’ve also been very honest about those that we can’t.”
“That’s the BNP Paribas way and it’s what I think gives clients confidence when they’re working with us.”
That commitment has been visible in the desk’s pricing, where in 2020 it traded on just over 17% of all the selling enquiry it received. And it’s particularly true in its focus on providing liquidity for BNP Paribas’ own issuance. “We want to be trading everything that comes out in the secondary market that was issued by us – demonstrating our commitment to our own paper by backing that up with numbers,” says Kashani.
It also shows in its market share gains during the year, not just in flow products but in non-investment grade tranches and CLOs, where it had a strategic goal at the start of 2020 to raise its market presence.
Overall, the desk increased ABS and CLO trading volume by 35% in 2020, while the number of clients it transacted with grew from 152 to 182. And while the primary CLO business has nearly tripled its European market share over the last five years, from 5% in 2016 to roughly 14% in 2020, the trading desk has also been pushing hard to catch up, more than doubling its volume in 2020.
“European CLO issuance is very important to the bank and we felt that growing our CLO secondary footprint was the next step in the evolution of the desk,” says Kashani. “It was a very busy market but we still managed to take some market share. We make markets and provide liquidity up and down the capital structure in CLOs so that the trading desk matches the capability and execution offering of the primary side.”
As well as these commitments to a consistent market presence and executable pricing, the team is also focused on making sure the desk provides clients with full transparency. With the market commonly using BWICs to transact, dealers are in a good position to gather data, and BNP Paribas has used that to highlight trends and volumes to clients, as well as impacts on spread moves.
“Transparency sets us apart,” says Kashani. “We try to provide as much colour on what we’re doing as possible because we’re not in competition with clients, we want them to make the best decisions they can and we hope that gets rewarded with more business.”
He also sees new technology as facilitating greater openness. “We want to push into the digitalisation of ABS and CLO secondary trading, and will adopt suitable technologies, because automation and transparency are key for the growth of the market.”
BNP Paribas is already developing the technology that the desk uses, for instance it has brought together its pricing systems and models, but the goal isn’t just to make its own workflow more efficient. “It benefits clients because we can make the market colour we provide more accessible, and it gives us more time to work on deep analysis for clients,” says Kashani.
BNP Paribas has also earned a reputation for being able to discretely manage large portfolio liquidations, helped by Kashani’s prior experience with discrete portfolio liquidations over the years before and at BNP Paribas. In March 2020, two separate liquidations made waves in the market, one of triple-A CLO paper, and one of CLO equity – but a third ABS deal, the only one of the three managed by BNP Paribas, went under the radar.
“It’s our calling card for clients that says we have depth of liquidity on both sides,” he says.
