Equity Derivatives -
CUSTOMER DRIVEN
TEAM WORK
12
investment Banking
WHAT's NewS Issue 3 March 1998
Of all the new product groups currently building their infrastructure and
business within the bank, global equity derivatives (GED) is one of the least
familiar. It is also the first to come up with a marketable product in cooperation
with various departments throughout Rl and Rabo Securities.The success of
equity derivatives"range warrant' in both the Dutch and German markets shows
just how a joint effort can create and innovate in this complex, high margin,
customer driven business. GPM Teym Eliazov explains how it all works.
Although the GED has a global mandate,
right now Teym's regular stops on his
itinerary are predominantly Amsterdam,
Utrecht and Frankfurt and back to his
London base. The reason is simple, he
says. 'We are in a very different business
to other product groups. We are also in a
different position in terms of existing
infrastructure. If you look at the
development of, say, short term interest
rates or forex groups in Rabobank, then
you see that these groups already have a
world-wide presence. Our products are
quite new to Rabobank, and they help us
differentiate RI from our competitors with
a high-value offering to our customers.
Our business requires highly complex
technology and systems. Therefore our
first task is to build solid systems and
infrastructure to provide the global
support essential for our products, and
our approach is to get that part of our
business right in our existing hubs before
looking further afield.'
BUILDING INFRASTRUCTURE
The global equity derivatives team first
plans to build key level support in three
initial locations - London, Frankfurt and
Amsterdam. 'This will allow us to
establish the kind of foundation we
require.' Eliazov explains. 'Perhaps the
range warrant we recently developed is a
good example of how we plan to work.
We defined this product as an appropriate
response to specific customer needs in
current market conditions. Then we
launched them on both the Dutch and
German markets with great success. This
simultaneous issue of a product in two
markets is characteristic of how we will
expand our business in the future. First we
will put in place the infrastructure we
need to develop products, then we will
propagate that established infrastructure
to different locations. Basically, we are not
looking to do everything in every possible
location at the same time. Rather, we
make sure everything we need works first
in the three main hubs. Then we will
spread this success to more and more
locations.'
TRACKING CUSTOMER
REQUIREMENTS
The technological requirements of equity
derivatives are complex, hut this product
group is at the cutting edge of Rabobank's
ability to differentiate itself in satisfying
customer needs. 'This really is a customer-
driven activity,' he insists. 'If you look at
the process of product development, then
you see that alongside our range of
Standard products, we are continually
tracking customer requirements.' This is
done in cooperation with many people
throughout RI. The process begins with an
idea. 'Someone will piek up on a new
trend - that can be a product developer,
but more frequently it is a relationship
manager or someone in a regional sales
office in constant touch with clients.'
SPECIALIST INTERACTION
The idea of monitoring the market and
reacting to customer needs is a key
concept understood by all Rabobankers.
But Eliazov is quick to point out that it is
a long way from ideas to done deals. 'In
order to turn the idea into a viable
product, many people in different
locations are working together. For
example, the range warrant was launched
by the efforts of a team spread over
Frankfurt, Rabo Securities (Amsterdam)
and London. So the GED team brings
together traders, product developers, sales
and our people from risk management. So
you get this mix of expertise, you get
people responding to market conditions
Teym Eliazov getting our approach right
from various perspectives and together
hammering out possibilities for attractive
products to deliver value for RI customers.
In this way, GED are really putting into
practice the key ideas developed at the
RICO conference last November.'
PRODUCT STRATEGIES
Interaction remains part of the product
development process throughout. 'Once
you've selected and worked out ideas,
these are passed on to the product
developers.' Eliazov continues. 'But that
doesn't mean input from other disciplines
is at an end. In fact, it's only just starting
for many departments. Working with
traders and sales people, the developers
then come up with models, risk
management tools and spread sheets. They
test the software, they build the pricing
and the hedging strategies. This involves fl
people in Operations, in IT - it's very
much a group effort. While this is going
on, sales people in syndications and in
Rabo Securities will be preparing the
prospectus and working out the best way
to bring the product to the market. You
have to remember these products are
complex, but they are aimed at retail
customers, ordinary people looking for
investment opportunities. So they have to
be accessible, transparent.'
BEST PRACTICE
One area where the Rabobank equity
derivatives team maintains its leading edge
is by integration of risk management and
financial control into the development
process itself. 'We are very serious about
risk management and financial control,'
Eliazov stresses. 'Any processes we put in
place are subject to approval from market
risk management. But we have gone even
further. We have a product risk manager
sitting with us, working with us, as we
