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Fixed income derivatives - There must be a betterway

Sophisticated derivatives players are still searching for the best way to sell their wares. With specialized derivatives teams? Or along with the cash products? David Shirreff reports

    Author: David Shirreff

Since derivatives aren't an asset class it surely makes sense to sell them along with the underlying cash instrument rather than market them independently.

Mehmet Dalman

That's the logic. But in practice even the major players don't sell derivatives in such an integrated fashion. The main obstacle is history. Derivatives started and flourished in most firms as an independent product area. The politics of institutions, and managers protecting their turf and their jobs, has meant that integration between derivatives and cash has generally been a slow process. And where it has happened, the results aren't 100% in favour of integration.

There is an inherent conflict. The more you integrate product areas, the less vigorously individual products are marketed. Selling integrated solutions to customers' risk-management problems sounds good, but turnover suffers.

One derivatives expert recalls the sad history of Paribas, which went for total integration in around 1993. "I think it was a mistake: it killed derivatives at Paribas," he says - although there was a later attempt to recreate an independent derivatives operation.

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