Thursday, September 9, 2010

JP Morgan: The Future of Equity Derivatives

From eFinancial Careers:

Equity derivatives are THE HOT area
As we noted yesterday, JPMorgan analyst Kian Abouhossein and colleagues have put out a new report. It is 176 pages long and much of it deals with the future for equity derivatives.
If you work in equity derivatives, or aspire to work in equity derivatives, this is what you need to know – distilled.

1) Equity derivatives are going to be the ‘key determinator’ for IB wallet growth
FICC is dead. IBD has yet to come to life. Equity derivatives are the only hope.
Abouhossein is predicting a 10% CAGR for ED between 2010 and 2012 based on, ‘higher long-term profitability, lower operating gearing, and more diverse business mix.’

2) They’re hot, but it may feel like equity derivatives are cooling down
While 10% CAGR is not to be sniffed at, Abouhossein says the business has historically grown at a rate of 15%. The slowdown is predicated on: less client leverage; demands for more simple structured products; new capital rules for banks reducing profitability.

3) You really do want to be working in ETFs, Delta One, strategic corporate derivatives, or emerging markets equity derivatives

This is where Abouhossein thinks the real growth will be. He’s predicting that ETFs will grow 20% per annum between 2010 and 2012, that ‘strategic corporate transactions’ will grow 10-15% per annum, and that Delta One products will grow 9% per annum....MORE 
HT: DealBook