Equity Derivatives House: Barclays

IFR Awards 2021
5 min read
Christopher Whittall

Coming together:
Rising stock markets and record dealmaking activity provided powerful tailwinds for equity trading desks in 2021, vindicating the expansion strategies at a number of investment banks. For continuing to take market share and grow its presence in these competitive markets, Barclays is IFR’s Equity Derivatives House of the Year.

Equity derivatives have been a mercurial part of investment banks’ markets units over the past two years: often a source of bumper trading profits; occasionally responsible for eye-watering losses. Barclays has stood out during this alternately heady and tumultuous period for its steady and impressive growth across flow, strategic and structured equity derivatives, while also side-stepping banana skins along the way that have upended rivals.

Gains across prime services and derivatives helped Barclays’ equities division record its best ever year-to-date performance at the end of the third quarter on the back of the UK bank increasing its equities market share to 5.5% in 2020 from 3.8% in 2017. That has allowed Barclays to leapfrog three positions in two years to become the seventh largest bank in global equity derivatives at the end of the first half of 2021, according to analytics firm Coalition Greenwich.

Across the equity derivatives business “we’ve seen significant growth and progress in every region”, said Todd Sandoz, co-head of equities at Barclays. ”In some cases we’ve had perennial strengths that have given us a beachhead to build off and to be able to weather [and to] monetise some of the events of the last year, but also to be in a really strong position to meet our clients’ needs.”

Sandoz, his equities co-head Paul Leech and Stephen Dainton (now co-head of global markets) have been the architects of Barclays’ equities expansion that has delivered three years of annual market share gains for the bank. That period spans the Covid-19 pandemic, bringing with it the complications of home working as well as the sharpest equity market correction since 2008.

Barclays’ formidable flow trading desk traces its origins to that former crisis when the British bank acquired Lehman Brothers’ US operations, providing a North American outpost that remains the envy of its European rivals. The flow business has been one of the foundations of Barclays’ equities build-out, helping it navigate volatile markets and allowing it to keep recycling positions from its other burgeoning businesses such as structured products.

“That has been one of the key themes for this year: we have been able to bring the whole organisation together, really look at the flows very holistically and be able to be there for clients from a liquidity provision point of view,” said Leech.

Getting busy

Barclays has continued to consolidate its position in flow derivatives as attention passed to meme stocks, inflationary pressures and sector rotation, becoming the joint-second ranked bank globally in the first half of the year, according to Coalition Greenwich, up from fourth in 2020.

The UK bank also looks set to deliver its best ever year in structured notes, with issuance increasing 34% by the end of the third quarter. In the US, it was the number one SEC-registered note issuer in 2021 with US$10.2bn of issuance over that period, Barclays said. That comes as part of a global push spanning Asia and Europe, where the bank made a number of important hires to expand its footprint.

“Structured derivatives had a very strong year in 2020 … but we really didn’t rest on our laurels. It made us, I think, even better placed for the activity that came,” said Ian Merrill, global head of equities structuring.

Barclays was very active in fixed index annuities too. That included winning a new mandate with US retirement specialist Athene for products based on the Shiller Barclays CAPE Index.

“Everybody in the industry really views that index as the gold standard,” said Adam Politzer, senior vice-president at Athene. “Barclays has done a great job at forming partnerships – they seem to know the industry better than their peers.”

Strategic equity derivatives have been another important growth area in a year when record dealmaking volumes and rising equity markets provided a healthy pipeline of activity. Barclays’ revenues increased 110% year on year in the first half, making it the fastest-growing bank in this area, according to Coalition Greenwich, driven by private equity financing in particular.

Leech noted Barclays has invested in its equity derivatives business as it has grown, giving it an edge when the market backdrop becomes less benign.

“The market condition tailwind doesn’t last forever,” he said. But the “tailwind from the new hires that we’ve made, the investments we’ve made from an infrastructure point of view – that is going to help us when things normalise”.

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