Interest Rate Derivatives House: BNP Paribas

IFR Awards 2023
5 min read
Natasha Rega-Jones

Global growth

Rising interest rates triggered dramatic swings in financial markets in 2023, causing the collapse of some US regional banks. For increasing its international presence amid these choppy waters, BNP Paribas is IFR’s Interest Rate Derivatives House of the Year.

There’s never been any question about BNP Paribas’ pedigree within the European interest rate market thanks to its long roster of European corporate and institutional clients, as well as its strength in European government bond trading.

But it was BNPP’s ability to go toe-to-toe with rivals internationally in 2023 – whether that was in volatile US rates or Japan’s reawakening markets – that made it stand out in what proved to be a watershed year for the bank.

The strides BNPP made in US interest rates were particularly impressive and proved invaluable when these markets erupted in March as crisis gripped US regional banks. BNPP increased its market share in US interest rate swaps by 40% in 2023, the bank said, and roughly tripled its revenues in US swaps and options from the previous year.

“We want clients to think of us as someone who can take down risk across markets in derivatives, swaps and options in any large currency,” said Kunal Maini, co-head of macro for the Americas. “Today, you can think of us as [a] large and very valuable bank across all markets.”

The US took centre stage in 2023 as the US Federal Reserve’s aggressive tightening cycle caused the collapse of a handful of small and mid-sized lenders, most notably Silicon Valley Bank. BNPP was able to take on large rates risk for clients throughout the turbulence, while also providing competitive prices across different products.

That was partly a result of BNPP’s strategic decision around the time of SVB’s collapse to reduce its holdings of assets such as mortgages and Treasury bonds – which it believed could get hurt in that environment – and allocate more resources towards trading derivatives.

“We increased our risk dramatically in the swaps book and the options book in the US,” said Maini. “That helped us in a big way – not just to make revenues, but also to get clients interested.”

Elsewhere, BNPP revamped its risk recycling approach for electronic trades, combining swaps and assets such as US Treasuries in one book. That improved its ability to internalise risk and allowed it to offer better prices for clients. BNPP said it consistently ranked in the top five for request for quote swaps on Tradeweb in the second and third quarters of 2023 and was even ranked number one overall during April’s volatile markets.

Increased activity with US corporate clients was another important part of BNPP’s US success, with Maini saying the bank won “multibillion dollar” risk transfer trades in interest rate swaps, deal contingent hedges, and Treasury locks in competition with large American banks. BNPP made significant headway in block trades as well, growing its presence across futures, options and swaps.

“[Our] culture, electronification, technology and risk taking have gotten to a much better place,” said Maini. “[Our] success in the US is really part of our [overall] globalisation effort.”

In Europe, meanwhile, BNPP grew its retail structured notes business by leveraging its extensive distribution capabilities and investing in its Smart Derivatives digital platform to expand its suite of products. The bank’s ability to offer scalable electronic trading of capital-guaranteed products like curve steepeners saw quotes on the platform roughly triple in the first half of 2023. Faced with this deluge of new activity, BNPP also developed strategies to recycle these risks with its real money clients to enable it to accommodate far larger flows.

BNPP made notable gains in Asia-Pacific too. Japan was a particular highlight, as client trading surged amid signs of prospective shifts in monetary policy. By November, BNPP had roughly tripled the revenue generated in Japanese rates compared to the previous year, with the volume of interest rate swaps traded growing by one and half times over that period.

“What we’re really proud of in 2022–23 is the way we’ve grown our global business,” said Neehal Shah, global head of G10 FX trading and EMEA head of FX institutional sales at BNP Paribas.

“As these other markets come alive, we're able to really impress clients and [show them] that we're not just a European bank.”

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