Goldman Sachs and Deutsche Bank Complete First Successful Auctions of Economic Derivatives
Firms open new frontier in risk management with options on September Nonfarm Payrolls
NEW YORK/LONDON – The Goldman Sachs Group, Inc. (NYSE: GS) and Deutsche Bank announced that they have successfully completed the first-ever auctions of economic derivatives: options on the U.S. Bureau of Labor Statistics' release of change in U.S. Nonfarm Payroll data for September 2002.
The auctions took place on October 1 and October 3. Participants placed more than 120 limit orders for more than $60 million notional. A total of $19 million notional in options was created. The October 3rd auction was three times larger than the first auction, in both notional amount and number of orders placed by a mix of Deutsche Bank and Goldman Sachs traders and clients.
The U.S. Bureau of Labor Statistics announced that September Nonfarm Payrolls fell by 43,000 jobs. The implied market forecast among auction participants was a drop of 38,000 jobs in the October 1st auction and a drop of 18,000 jobs in the October 3rd auction, in contrast to economists in the Bloomberg survey, who anticipated a gain of 7,000 jobs.
"This week, we opened a new frontier in risk management: direct, 100-percent-correlated exposure to macroeconomic risk," said Peter Gerhard, Head of Macro Trading at Goldman Sachs. "For years, investors and traders have employed a variety of hedging instruments in struggling to offset the impact of economic news or events on portfolios of all kinds. Now they have a tool to eliminate all basis risk in expressing their view on the drivers of the macro economy."
"We are proud to have given our clients a new way to position and manage risk.
A large number of clients and other market participants have closely followed these events in preparation for trading in upcoming auctions," said Mark Johnson, Global Head of Foreign Exchange Risk at Deutsche Bank.
Market reaction to the Nonfarm Payrolls figure, as indicated by a fall in government bond prices and a dollar rally, suggests that the orders of auction participants represented a better overall gauge of market expectations and how risk was positioned than the traditional consensus of economists. The actual release being 50,000 jobs below the Bloomberg survey is inconsistent with a sharp sell off on the short end of the bond market. The market reaction indicated that a more negative view was already priced into the markets.
Using a patented application of risk mutualization developed by Longitude, Inc., Deutsche Bank and Goldman Sachs provided a full range of vanilla and digital options on the Nonfarm Payrolls release through a Universal Dutch Auction format. The two firms plan to hold similar auctions on additional economic indicators in the coming months. On October 31, they will hold the first-ever auction on October ISM manufacturing data, which will be released on November 1. On October 29 and 31, auctions will be held for the October Nonfarm Payrolls release, which will take place on November 1. These auctions will be followed by other economic indicators including Retail Sales.For more information on Economic Derivatives, see www.economicderivatives.com.
Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net worth individuals. Founded in 1869, it is one of the oldest and largest investment banking firms. The firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.
With roughly €900 billion in assets and approximately 84,500 employees, Deutsche Bank offers its 12 million clients unparalleled financial services in 75 countries throughout the world. The Bank aspires to be a leading global provider of integrated financial solutions for demanding clients and the pre-eminent bank in Germany generating exceptional value for its shareholders and people.
Deutsche Bank ranks among the global leaders in corporate banking and securities, transaction banking, asset management, and private wealth management, and has a significant private & business banking franchise in Germany and other selected countries in Continental Europe.
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|Bruce Corwin||Harriet Benson|
|Goldman Sachs||Deutsche Bank|