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Nomura to offer enhanced FX options, hedges through new correlation business

Nomura is set to increase its focus on FX index options, basket-style hedges and specialized investments for hedge funds through a new FX correlations business launched recently, says global head of FX options Nigel Khakoo.

Nomura created the FX correlation business to take advantage of multi-currency offerings that the bank is building in Turkish lira, Brazilian real and other currencies being offered to clients in Japan and elsewhere in an effort to enhance yield gains, says Khakoo in an interview with EuromoneyFXNews’ sister publication Derivatives Intelligence. Khakoo said the new FX correlations business would also focus on lowering the cost of FX market hedging for corporates trading currencies.

“If you are, for example, a US institution with investments in Europe or Japan, you can buy option protection and cheapen the cost by using basket-type hedges,” says Khakoo.

Nomura has added a number of new staff members to its FX options trading operations recently, including hiring Tim Owens as global head of structuring from JPMorgan in April and taking on Jérémie Tobelem to run EM options, as well as James Durcan to strengthen its euro options team.

Khakoo says Nomura has a natural capability in specific currency pairs – anything involving JPY and AUD, as well as liquid currencies like the EUR – and that his team is focusing on products where it has a competitive advantage and can provide tailored products to its clients.

“We know the Japanese client base looks for yield, which is where currencies like Turkish lira and the Brazilian real are important. So we would build a multi-currency product that’s suitable for that client base, which requires a slightly different set of pricing tools,” says Khakoo. “There are [also] scenarios where we are looking at cheapening the cost of hedging for a corporate customer with a portfolio of currency exposure.”

The new FX correlations business will require electronic trading and pricing technology that accounts for the “right weighting” of FX options baskets designed to take advantage of key macro data releases from central banks and governments, says Khakoo.

“Given our franchise and liquidity pool, it is not necessarily about building a desktop interface and trying to compete in that way; but if we can connect into a platform we will be successful. It also allows us to choose who we provide liquidity to,” says Khakoo.

Khakoo adds that clients for Nomura’s FX correlations business will benefit from the bank’s ability to remain nimble in a variety of trading environments – both developed and emerging markets – where new, incoming financial markets regulations are creating uncertainty for investors.

“Sell-side institutions are not going to relinquish control over [FX trading] execution, and liquidity in the [FX] options market has got worse. It is not getting any better, and we are not going to give it away for free.”