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Merging Pains

It's looking like a bull market for derivatives recruiters these days. This year's three big mega-mergers—Union Bank of Switzerland with Swiss Bank Corp., Salomon Smith Barney with Citicorp, and Bank of America with NationsBank—seem to be inspiring massive demographic shifts as the banks complete their merger negotiations.

Thus far, the UBS/SBC deal has caused the biggest waves. In the last three or four years, UBS mounted an ambitious effort to build groups in many different markets. Now that SBC players have reportedly come out on top in running the new derivatives group, competitors seem to be leaping at the opportunity to pick up the leading players at UBS. T.J. Lim, the former head of fixed-income and foreign exchange derivatives, has left to become cohead of global markets at Dresdner Kleinwort Benson; Pierre Fischer, former head of interest rate derivatives, has left to become head of trading and deputy director general at regional player Banque Cantonale Vaudoise; and Paul van der Maas, former executive director of credit derivatives, has left UBS behind without securing a new position (see box, next page).

The merger between Citibank and Salomon Brothers/Travelers may prove even more interesting, since the derivatives strengths in both institutions overlap in many areas. At this point, the two sides are reportedly eyeing each other cautiously while transition committees wrestle with merger scenarios. Some top Salomon pros have already jumped (see box). But despite all the talking, recruiters say the final results are not likely soon.

Bank of America and NationsBank have less in common, with BofA stronger in the plain-vanilla flow business and NationsBank specializing in more elaborate structures. But jitters have inspired their own quick exits.

Some recruiters predict a new round of musical chairs come bonus time, as cash-flush firms reach into their pockets to build new businesses. Next year, moreover, Goldman Sachs is likely to begin building its derivatives business with the proceeds from its IPO.

The UBS Diaspora
Player Former Company Former Title New Company New Title
Teik Seng Cheah Union Bank of Switzerland managing director of regional fixed income and derivatives Paribas head of interest rate derivatives
Renaud de Planta Union Bank of Switzerland senior managing director Pictet & Cie partner
Clara Furse Union Bank of Switzerland global head of futures and options Credit Lyonnais Rouse chief executive
Pierre Fischer Union Bank of Switzerland head of interest rate derivatives Banque Cantonale Vaudoise head of trading and deputy director general
T.J. Lim Union Bank of Switzerland head of fixed-income and foreign exchange derivatives Dresdner Kleinwort Benson cohead of global markets
Gabriel Politzer Union Bank of Switzerland managing director, deputy head of global emerging markets ING Barings managing director, deputy regional head of emerging markets and high-yield debt and derivatives for the Americas
Andy Siciliano Union Bank of Switzerland global head of interest rates and foreign exchange United Bank of Switzerland interim head, structured products and interest rate derivatives marketing
Paul van der Maas Union Bank of Switzerland executive director, credit derivatives undecided n/a

The Salomon Diaspora
Player Former Company Former Title New Company New Title
Kevin Beauregard Salomon Smith Barney trader NationsBank Montgomery principal, equity derivatives group
David Bushnell Salomon Smith Barney head, global finance desk Salomon Smith Barney head, risk and credit
Tom Heffernan Salomon Smith Barney director of risk management Tokyo-Mitsubishi International managing director and head of risk management
John Macfarlane Salomon Smith Barney head, U.S. and Asian fixed-income derivatives group Tudor Investment (a hedge fund) chief operating officer
Joe Mezrich Salomon Smith Barney deputy director, global derivatives research Morgan Stanley codirector of quantitative research, international equities group
Peter Middleton Salomon Smith Barney chief executive undecided n/a

Erickson Gets To Infinity

Don't count Joseph Erickson among the growing number of risk management mercenaries who bounce around from institution to institution seeking ever-greater thrills and financial glory. In fact, he spent more than 20 years at the same employer, KPMG, where he served most recently as the chief architect and chairman of GlobeRisk, the firm's international market and credit risk management consulting network.

Recently, however, Erickson got a call from Infinity Financial Technology, the derivatives software firm and subsidiary of industry behemoth SunGard, which made him an offer he simply couldn't refuse. Infinity is venturing into the consulting business, and has tapped Erickson to fill the newly created position of senior vice president of worldwide professional services. “Infinity was looking for someone who had a lengthy history in professional services and knew something about the risk marketplace—the capital markets marketplace—that they play in,” says Erickson. “That's why they were attracted to me.”

The company plans to build a “sustainable and scalable professional services infrastructure” that provides consulting, training and software implementation services to its clients. Erickson is expected to help reinforce and realign Infinity's partner strategy and improve partner relationships, and will also oversee the company's network of third-party systems integrators and consultants. “It is always fun to do something that's entrepreneurial,” he says. “Because Infinity is a publicly held company, it's not as inhibited in building a global business as some of the companies run by partnership structures.”


  • Mark Harding, European counsel at Warburg Dillon Read, has been elected chairman of the International Swaps and Derivatives Association. He currently chairs ISDA's European Regulatory Committee and is director of the U.K. Futures and Options Association. Gay Evans, ISDA's departing chairman, will be director of markets and exchanges at the U.K.'s Financial Services Authority.
  • William Rollwitz has been appointed president and CEO at TransEnergy Management. He had been senior vice president and chief information officer at PG&E Energy Trading and PG&E Gas Transmission Texas.
  • Capital Market Risk Advisors has hired two people from Bankers Trust's Global Risk Management group. Lieng-Seng Wee has joined the firm as coprincipal and Judy Lee as senior vice president. Wee had been head of management consulting and managing director in the global risk management unit at Bankers Trust. Lee had been a principal. Together, they cowrote the book RAROC & Risk Management.
  • Inventure has promoted Matt Bruce to the position of chief technology officer for its FENICS business, and Lisa Stone to the position of FENICS regional sales manager for the Americas.
  • Jeffrey Mantel has joined C-ATS Software as director of product management. He had been director of product management at Infinity.
  • Ameren Energy has expanded its trading efforts in physical markets with the following hires: Deron Harrington and Jim Whitesides have been named directors of power trading, Michael Hayes has been named senior natural gas trader, and Laurence Hickey and David Ozbun have been named power traders.
  • Deborah Dray, former senior manager at Lombard Risk Systems, has been appointed manager of Financial Software Systems' London branch.

Please fax information on job changes to 212-366-0551.


Missing Statistics?

I am writing about two issues in Bill Margrabe's review of spreadsheet add-ins [“Comparing Add-in Accuracy,” August].

The first concerns Margrabe's tests of spread options. He bluntly states that all the packages are lacking because none handles all the sensitivities he was looking for, including the “important” cross derivative of the option price with respect to changes in each of two underlying assets. This sensitivity doesn't even have a name, because no one uses it (believe me, after selling a spread model for four years, if someone wanted it, we'd have heard of it by now). That's why it's the only sensitivity our system, TOPS, doesn't offer. Traders and risk managers are perfectly happy getting two deltas out of a spread option model, and don't want or need to be inundated with extra statistics that are merely of academic interest. Sure, we can add this to TOPS, but it's not an important number. It does all the vendors a disservice to imply, just because the reviewer is able to calculate a number, that all commercially available packages are missing important analytics.

The second point is more general. The review's apples-to-apples comparison necessitates looking at only the least common denominators across all products. This may be great for comparing option values, but really, who thought any of these packages would have trouble implementing Black-Scholes-Merton? The review should have focused on more important features, such as pointing out which ones could handle American and Bermudan spread options, and which could only do Europeans. The reader is left with the impression that all the packages are pretty much the same. The review unfairly penalizes products such as TOPS, which are capable of so much more than simple European foreign exchange options on spreads.

Sure, you can tell people to check out the packages for themselves before deciding what to buy, but if you're not going to put any meat in the review, why bother doing it at all?

Rich Tanenbaum

William Margrabe responds:

I hope the other seven vendors (Financial Engineering Associates, FinancialCAD, Intermark, Marvin, Mamdouh Barakat Risk Management, Monis and TechHackers) whose software I reviewed did not feel that my remarks were blunt. They cooperated graciously, and I tried to reciprocate.

When you have two underlying risk factors, cross gamma quantifies the change in one delta as the other underlying moves, just as each gamma quantifies the change in a delta as the corresponding underlying moves. Cross gamma conveys information about the shape of the valuation function and required rebalancing. When I produced multivariate models for a major equity derivatives dealer, the traders wanted to see it. After seeing the letter to which I'm responding, I called two leaders of teams that supply models to major derivatives trading desks in New York. Both appreciate cross gamma, launched into discussions of its significance and said they deliver it with their spread option models. One added, “We supply it with all two-dimensional models. Without it, they are incomplete.” He would be happy to discuss the importance of cross gamma with the letter writer.

All eight packages offer much more than I mentioned, and each vendor produces sales literature to sing the praises of its products. In case anyone got “the [crazy] impression that all the packages are pretty much the same,” I refer him to the vendors, via advertisements in this magazine and links from my web site (www.margrabe.com/Links.asp).

I'm in the business of testing models, and I wanted to be objective, so I limited my remarks to the results of my tests. Reviewing models from eight packages for a handful of products consumed more than two weeks of my life, so I limited my tests to a few products. My report for just three products filled five pages in Derivatives Strategy. If the National Science Foundation decides to fund my future efforts and Derivatives Strategy gives me an issue to fill, I'll expand my coverage.

I will give the letter writer the last words in this exchange. In his response on June 16 to an early draft of my review, he wrote: “First, a general comment that I have to eat my words. After seeing others fail, I didn't think it would be possible to compare values from a number of different packages in a publishable form…You got the numbers close enough to each other that I think you got it right. The explanations of how they differ is thorough, complete and lucid. I think you should be proud of the work you've done, and in a short span of time.”

William Margrabe
The William Margrabe Group

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