Future uncertain for equity derivatives
European institutional investors and banks were increasing their use of equity derivatives in the months leading up to the events of September and October 2008 but it remains unclear how much of this business will ultimately be affected by the financial crisis that has also hit structured products and equity derivative investors and traders hard.
According to Greenwich Associates, a financial services consultancy, the notional value of structured equity derivative products traded in Europe soared by two-thirds to a projected $500 billion over the 12-month period ending in June 2008. Over the same period, the share of European institutions using these products increased to 82% from 79%. US institutions, by contrast, decreased their use of such products earlier in the year.
"European accounts were moving in exactly the opposite direction to their counterparts in North America, many of which stopped using structured equity products as the global liquidity crisis set in," says Greenwich Associates consultant Jay Bennett.
"European accounts were moving in exactly the opposite direction to their counterparts in North America"
Jay Bennett, Greenwich Associates
More than 55% of banks principally purchase structured equity and securitized products with the intention of on-selling the instruments.