The business is built on a strong flow franchise, and a capacity for innovation and an ability to develop new markets that makes it extremely agile.
Flow volumes were up by 30% in 2006, and monthly average index volumes were up by 70% on that in the first half of this year; Deutsche’s asset-backed securities collateralised debt obligation (ABS CDO) bespoke trading business more than doubled volume in 2006-07. It is a pioneer: for example, in single-tranche loan credit default swaps (LCDS) portfolio trading. It carried out a record-breaking $8bn buyback of a client’s portfolio of synthetic CDO junior mezz tranches in the German market.
How has Deutsche generated such an impressive rise in revenues? “We try to offer our customers idea-driven strategies, which often go beyond directional bets and rely more on second order moves,” says Derek Smith, head of investment grade and high grade trading for the US and Europe.
Mr Smith believes that, in the past 12 months, LCDX stands out as being a significant addition to the marketplace. “From its debut, the product has shown consistent liquidity and solid performance.”
Although the recent financial turmoil has temporarily decreased both client appetite and the credit market’s liquidity, Mr Smith believes that it is funding led and that once liquidity returns, so will growth in the more vanilla products. He also thinks that LCDX will continue to be a popular strategy. “In response to what we’ve seen in the market, we are focusing on broadening illiquids/asset swap trading across US an Europe. We have also seen an increased appetite for index options/tranches from our customers.”
