Nomura’sAsia Pacific House of the Year win shows that when doing business in theregion, it pays to have a local pedigree, knowledge and a commitment to Asia.Buysiders think the firm’s investments in equity and fixed income derivativetrading and structuring have been paying off over the last 12 months. Thosebuyers, including asset managers, pension and hedge funds, also tagged Nomuraas ahead of the competition for innovation in structured products and research,which helped the firm land this year’s award from the editors of Derivatives Week/Derivatives Intelligence.
Richard Byworth, managing director and head of multi-strategy sales,Asia-Pacific in Hong Kong, said the effects of the global financial crisis helpedthe firm to stand out. With other dealers facing downgrades, Nomura has beenbusy convincing investors to add an Asia-based dealer to diversify theirportfolios. “Given some of the issues in Europe and the U.S., it would be anoversight not to have some of your risk balanced with an Asian institution.” hesaid.
Investors also pointed to Nomura’s keen pricing andexecution systems during the winner selection process as a key to the firm’srecent success. Byworth noted the firm had made a concerted effort to bolsterits derivative flow trading business with the hire of Jean El Khoury as head of equity derivatives trading, Asia-Pacificin 2010 from Deutsche Bank. “Jean’sfocus from the point of joining was to build [an execution] system,” Byworth said.“He brought in a team to start building it, and it was very quickly up andrunning. It’s really put us at the forefront of consistent pricing because ofthe visibility we’re able to have around managing risk.”
Byworth noted the firm has also been innovative on the flowside, pointing to products such as outperformance options as areas where thefirm has sought to cater to the needs of its hedge fund clients. A contingentoutperformance option pays out depending on the performance of two underlyingassets. Byworth said Nomura offered the contingent outperformance to hedgefunds looking to cut costs on the price of options. “Everyone’s very sensitiveof paying premium for options, so anything you can do to reduce that premium peopleare always keen to see,” he said.
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John Goff, head of fixed income structuring, Asia ex-Japan in HongKong, said the low interest rate environment pushed Nomura to innovate. Thefirm’s offerings of hybrid structures to yield-hungry investors illustrated itscommitment to the region, he said. “We were definitely one of the houses thatwere at the forefront of that market and we’ve pushed ourselves to have thetechnology and the risk appetite to do these types of products,” Goff noted. Goff pointed to a recent structured product that pits theSouth Korean won constant maturity swap rate against the European euro CMS asan example of innovation. The typically five-to-10-year note pays a high couponas long as the spread between the Korean CMS and the European CMS stays abovezero. “We realized very early on that there was going to be significantpressure on long term European interest rates to stay lower as the economyweakened, while the Korean economy is in a very different place.” he said. “We wereprobably the first house to get this product ready and out the door.
Nomura believes local roots and knowledge pay off. “A lot ofthese trades really live and die between your ability to move things like thecorrelation between South Korean won interest rates and Korean sovereign[credit risk], or the correlation between a Chinese property developer and a[U.S. dollar, Chinese yuan] cross currency swap,” Goff said. “So that’s alsobeen something that’s helped a lot. We do have a risk appetite for the Asianmarkets coupled with our strong understanding of the region.”