UBS - by far the biggets issuer of retail structured products in Switzerland - has made big strides forward in the rest of Europe this year. The bank has attracted high praise from clients and distribution partners for improvements in its service, established a strong foothold in the Netherlands and laid the foundation for further regional expansion. UBS also consolidated its domestic position by garnering a market share of 51% in Swiss Exchange structured product trading volume in the year to July, up from 35% for the whole of 2014.
But perhaps the most notable development has been the partnership begun in July 2014 with Amsterdam-based online broker BinckBank. UBS acts as market-maker and risk manager for listed leveraged products issued by BinckBank in the Netherlands, where UBS had not previously had much of a presence. The partnership has already carved out a 23% share of turnover in the €9.1 billion ($9.9 billion) Dutch listed leveraged product market for the year to the end of September.
BinckBank struck the initial agreement with UBS in late 2013 after speaking with 11 of UBS's rivals, including BNP Paribas, Citi, Commerzbank, Goldman Sachs and Societe Generale. "We talked to all the logical candidates and some outsiders. UBS was the only firm to propose the deal structure we envisaged and the one we felt could really do what we wanted," says Jean Paul van Oudheusden, head of business development at BinckBank.
BinckBank creates its turbos - open-end leveraged products with a knock-out feature - as book-entry securities, trading bilaterally against the market-maker. UBS trades the tightest spreads in the Dutch market for these instruments, notes van Oudheusden, citing as an example its 0.5 cent spread for turbos on the Amsterdam Exchange Index.
Beyond the Netherlands, UBS wants to boost its market share in countries such as Belgium, France and Italy, where BinckBank also has a strong presence. "UBS was looking for international expansion. We were looking for product, but we weren't going to hire traders and do the market-making. It was a very good fit," says van Oudheusden.
We need to be able to deal with a high quote and trading load. So our booking and trading set-up needs to be state of the art
The market share achieved so far has exceeded BinckBank's initial target, and both sides are on track with what was promised, he notes. As the venture expands to Belgium and France, where BinckBank is the number one and number three online broker by trading volume, respectively, it is also looking to move into underlyings other than equities.
Meanwhile, Germany - where UBS has an 8% share of the structured products market by trading volume - is another country in which UBS has strengthened its offering. In late 2014, it became the first issuer in Germany to publish a figure for knock-out probability for its structured products. It now constantly calculates and shows the mathematical likelihood of a barrier being hit in a certain timeframe. Citi followed suit soon after and other issuers are expected to do so in the coming months.
The bank has clearly set a new standard for product transparency, which appears to have been welcomed by clients. "They are very proactive in providing information and updates - when barriers are hit, for example. Their service on product reporting is remarkable," says Malte Rubruck, senior manager of trading at German online broker DAB Bank, adding that UBS was the first to trade knock-outs without spread on the German Dax index. "Our customers really liked that," he says.
Other clients are similarly positive, applauding UBS's aggressive pricing, which has often beaten Germany's biggest issuers. Juergen Engel, Nuremberg-based senior manager of brokerage products at Consorsbank, says the speed of service has improved to the extent that his questions are now answered within 30 minutes. Another online broker remarks that when it comes to market-making or flow trading, the Swiss bank "is becoming more and more relevant" for his business.
UBS's speed and responsiveness when it comes to quoting prices reflects the importance the bank attaches to its systems infrastructure. "We need to be able to deal with a high quote and trading load," says Marcel Langer, head of public distribution sales for Europe. "So our booking and trading set-up needs to be state of the art."
Meanwhile, UBS continues to show its aptitude for product innovation and capturing emerging trends. A good example is the launch of an open-end certificate on the SolActive FinTech 20 Total Return index in March 2015, which tracks the performance of the 20 largest innovative financial technology companies by market capitalisation.
UBS has long been one of the biggest issuers of retail structured products in Europe. Now, thanks to smart partnering, sharp pricing and responsive reporting and service, it looks set to use its position to gain a stronger foothold in markets traditionally dominated by other players.
The week in Risk.net, May 19-25 2017Receive this by email