Bank of America has been one of the leading players in the derivatives market for years, distinguished by the breadth, depth and quality of its offerings. But even taking into account the bank’s august history in the sector, its dominance of GlobalCapital’s Americas Derivatives Awards this year is striking. The firm topped the polls across a six categories, marking one of the most commanding performances from a single banking institution.
The awards are:
Americas Derivatives House of the Year
Americas Equity Derivatives House of the Year
Americas FX Derivatives House of the Year
Americas Interest Rate Derivatives House of the Year
Americas, Europe and Asia, Commodity Derivatives Bank of the Year
Americas Research and Strategy House of the Year
Commitment to Commodities
Bank of America’s strategic initiative to stay invested in commodities through a down cycle when many other firms exited the space has paid off over the last two years. From the pandemic-induced slump in demand through to the inflationary spike and soaring energy prices, market participants that abandoned hedges during the stable years of the 2010s have found themselves in serious need of help.
“Commodities is a core risk management tool inside the bank and we’ve seen a significant increase in the number of clients coming to us for bespoke solutions,” says Tom Blair, global head of commodity sales and co-head of global markets investable indices sales. “We’re very much a solution-oriented business and everything is about helping our clients manage the inherent commodity risk of their portfolio.”
Being at the vanguard is where you can really differentiate yourself and so we’re always trying to innovate
The bank’s client base spans institutions and corporates managing portfolio risk through to major producers and consumers. Bank of America attracts such a loyal, diverse client base in part for its commitment to commodities, but also through a focus on innovation and anticipation. The firm has positioned itself at the forefront of the energy transition, long recognising that the shift to renewables and green energy would transform clients’ needs. “Being at the vanguard is where you can really differentiate yourself and so we’re always trying to innovate,” says Blair.
IR market share ramps up
The bank’s interest rate derivatives operation saw very large increases in market share with several large real money clients in interest rate swaps and options. This complemented the existing strength with hedge funds and corporates to result in large market share increases in the products overall. They also prioritised conversations with dozens of commercial banking clients, encouraging them to hedge interest rate exposure given the likelihood of higher rates. “Conversations with clients and businesses all across the country gave the team good insight into the inflation dynamics that were evolving” said Kavi Gupta, the bank’s co-head of global rates. “Bank of America is uniquely positioned given our footprint and incredible market share with commercial banking clients.”
Bank of America also distinguished itself in being highly active when it comes to helping clients through the benchmark transition. “We were the first to provide liquidity in SOFR at the same bid-offer spread as LIBOR on day one when dealers migrated,” says Gupta. “BofA pioneered that and it helped participants across the market get comfortable with the SOFR product very quickly.” Similarly, the firm stands out from a thought leadership standpoint, with representatives on the Alternative Reference Rates Committee (ARRC) working on a variety of different issues including the term rates proposal and credit spread component, and SOFR based on nonlinear products for end users.
“Given our scale, what’s come together for us is consistency from a sales standpoint, a passion for helping clients and franchise growth,” says Gupta. “The desk is really focused on printing customer business and growing market share, and that’s helped us in a lot of ways.”
Equity excels on innovation
On equities, the last few years have seen the bank better align its derivative sales and trading business. Combined with an existing customer-oriented culture, this put the bank in an excellent position to handle the rise in volatility. “We've built this platform where we can weather all storms,” says Tim Whiteley, head of Americas equity derivative sales. “I think that rests on the responsible growth model that CEO Brian Moynihan has instilled in the firm.”
Being part of BofA allows us to lean on our teammates across products, solutions, and as needed toward our balance sheet in a way that really helps clients, especially in times of stress and in volatility
But this responsibility goes hand-in-hand with innovation. The bank had a record breaking year for patents in 2021, with more than 512 granted. Whiteley points to several years of work that recently culminated in a new patent for the bank, which he describes as the first intraday volatility control technology for the fixed index annuity market.
“That says a lot about what's going on in terms of innovation and how we're growing as a firm and as a franchise,’' he adds. “The big growth for us is in the structured space. We're a bank with a broker dealer. Being part of BofA allows us to lean on our teammates across products, solutions, and as needed toward our balance sheet in a way that really helps clients, especially in times of stress and in volatility.”
FX soars post-merger
The transformation in the FX derivatives operations has been even more stark. In the last two years, the bank has combined its emerging market and FX businesses. This has created a trading operation with a flexible, sophisticated skill set ideal for handling everything from peso volatility to pound sterling behaving like an emerging market currency. But the team also created a dedicated initiative to become a major player in the FX space.
“We called it Back to Top and the aim was to be in the top three with every counterparty, in every sector in every currency,” says Carlos Fernandez-Aller, head of global foreign exchange and emerging markets macro trading. This led to a 36% increase in volumes over the last two years - more than three times the increase in the wider market. Part of this stellar growth came from a focus on under-served clients - notably hedge funds and real money. “We hired a group of new salespeople to make sure we increased our presence,” he says. “I’m confident if you asked those clients which is the most improved bank our name would come up pretty often.”
Against the backdrop of the merger and the hiring spree, Fernandez-Aller has also overseen a shift in the approach to risk appetite. This was exemplified by the bank’s expansion in 2021 into a new product - “FX deal-contingent” - which the bank had previously left to rivals. “We wanted to find a compromise and a balance in risk taking and this is an example of that,” he says. “It took a lot of discussion about how to minimise risk, but FX deal-contingents now account for a significant portion of the business.”
A unique perspective
Bank of America’s derivatives research team stood out for its collective experience, a unique focus on cross-asset volatility and its ability to provide macro and micro perspectives on key challenges.
“We’re able to start with describing the high-level issues that almost all clients are facing - these highly unusual market trends of the last two years that haven’t been seen in decades,” says Ben Bowler, head of global equity derivatives research. “We can pinpoint the challenges investors will face, but then drill all the way down into real solutions.”
That focus on finding value across asset classes - equities, rates, commodities, credit - in a volatile market, that’s something unique to our approach
The team spends a huge amount of time providing answers to the difficult questions facing market participants. This encompasses not just the more common tools around efficient hedging solutions, fixed income challenges and optimal diversification. But also the more fundamental challenges, such as the increasing frequency of rare events and end of the Fed-put era. The team’s search for optimal solutions is aided by its flagship global financial stress indicator tool, which provides risk measurement and monitoring across a total of 43 factors covering five asset classes.
“That focus on finding value across asset classes - equities, rates, commodities, credit - in a volatile market, that’s something unique to our approach,” says Bowler. “There are not many houses that combine a unique perspective on macro issues, cross asset volatility and then follow that all the way down to a specific solution that helps clients efficiently mitigate the risk of these formidable threats.”