Nathalie Texier-Guillot is head of U.S. equity derivatives structured sales at Citigroup Global Markets. That means she helps pension plan sponsors, asset managers and insurance companies find alpha and manage their trading risks using customized options and other equity derivatives.
The executive recently sat down with Traders Magazine to discuss the state of play in over-the-counter equities derivatives. This is the second of a two-part series. Click here to read Part One.
Here, Texier-Guillot discusses the impact of Dodd-Frank on OTC equity derivatives.
TM: Dodd-Frank is expected to lead to new rules that will require increased collateral for OTC derivatives transactions. Is this impacting equity derivatives?
Texier-Guillot: Yes, it is impacting the business. But there are other ways to trade. You can use the note or the ETF. There are rules-based strategies that dealers have been putting on the market. You don’t need to trade under a swap format. You can trade under a note or a fund format. There are different ways to allow those investors to still trade those structures.
TM: Higher collateral requirements means increased costs?
Texier-Guillot: Yes. The collateral amount is changing. It’s affecting the value of the trade. So, for example, an insurance company needs to hedge a variable annuity. Does it make sense to hedge? Or not?
That will be a bigger part of the equation now. It’s affecting the economics of the trade.
TM: Will there be a switch to listed products?
Texier-Guillot: Pensions and asset managers who used to trade OTC-say, an S&P option. Now they will trade listed. The issue with trading listed is that you don’t have the anonymity and you cannot trade in huge size. You have access to liquidity, but people will know that it’s trading because they see the print on the tape. So, you get more liquidity with no counterparty risk, but everybody will know.
TM: How big a deal is this?
Texier-Guillot: Well, there’s only so much you can move to listed from OTC, because you can only move what you can standardize.
