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New RBS report on trading property derivatives via Futures

posted Apr 11, 2011, 5:39 AM by Colin Barber

The RBS trading desk have published a report detailing the Exchange Traded Property Futures Market, the first report of its kind on this subject.   

RBS consider that there are distinct advantages for some clients trading property derivatives via Futures, as opposed to the more common property swap market.  These advantages are:

  • Virtually eliminates counterparty/credit risk;
  • Independent monitoring and reporting of trades;
  • Faster Trade execution;
  • Potential for better price execution; and
  • Greater comfort from a regulatory perspective

Download the report from "Attachments" below

Nick Scarles steps down from derivatives role

posted Mar 29, 2011, 12:35 PM by Colin Barber

The Investment Property Forum has appointed Will Robson, director of property derivatives at PRUPIM, to succeed Grosvenor’s Nick Scarles as Chair of the Investment Property Forum’s Property Derivatives Interest Group (PDIG).

Read more: at propertyweek.com 

260 participants in PDIG Trading game

posted Jan 27, 2011, 2:46 PM by Colin Barber

The PDIG Trading Game, which will run for 8 weeks and conclude with an event on Monday, 28 March has signed up 57 teams, with 260 participants.

Global property derivatives: trading volumes bounce back in Q3

posted Nov 12, 2010, 1:35 PM by Colin Barber

The global property derivatives market bounced back over the third quarter with the strongest quarterly trading volumes this year – at £756m. The trading volumes, more than double Q2’s £300m, bring the year-to-date levels to more than £1.5bn.

Nick Scarles, Chairman of the PDIG and Grosvenor’s Group Finance Director,said: “The strong recovery in the volumes quarter on quarter reflects not only a general recovery in the financial markets as a whole, but also the level of pricing which has been attractive to investors and those who trade in property derivatives for profit.”

In addition to which, the third quarter has seen the strongest-ever quarterly property derivatives trading on the futures market via Eurex. The sum of open interest as at the end of October was 1,429 contracts, (£72m approx). The majority of interest is on the calendar 2010 contract.

“The key attraction in using Eurex is that it reduces counterparty risk,” explains Kate Pedersen Derivates Client Manager at IPD. “It provides central counterparty clearing and it nets derivative exposure. In this regulatory environment, both of these are important balance sheet considerations.”

In the over the counter derivatives market, the vast bulk of trading activity came in the more mature UK market, comprising 78 trades worth £731m, with French trades reflecting £25m – down on the previous quarter which saw £54m across five trades.The total outstanding notional is now over £8bn.

Pedersen added: “The third quarter saw a decrease in the direct property turnover to £3.6 billion, so the ratio of derivative traded to direct property has risen to 20% for Q3 – in line with the long run average.”

New Structure for PDIG

posted Oct 20, 2010, 11:33 AM by Colin Barber

Following a recent review PDIG has restructured itself to produce a more focussed and informed organisation to meet its aims.  Take a look at the changes.

Updated Sub-Sector Report by Hoare

posted May 18, 2010, 11:15 AM by Colin Barber

Brett Scott has updated his sub-sector report.  It is available via the feature on the left of the Home page or in the archive.

PDIG Announces Release of : "Trading Property Derivatives"

posted Mar 23, 2010, 3:02 PM by Colin Barber

Trading Property Derivatives is aimed at those seeking to use property derivatives as a tool for the first time, by describing the issues they will encounter. It follows the recent update of "Getting into Property Derivatives", first published in November 2008, and has been produced by the Technical Sub-Group of the IPF's Property Derivatives Interest Group (PDIG), chaired by Will Robson.
Commenting on the publication, Nick Scarles, Chairman of PDIG, said: "Potential users of property derivatives tell us that the biggest challenge they face in using property derivatives is understanding the regulatory, legal, accounting, tax and administrative requirements and issues.  These two new publications seek to help end users get to grips with these issues, to smooth their path to using this market to meet their business objectives."

PDIG also announces an IPF PDIG Breakfast entitled "Trading Property Derivatives", at which real case studies will be presented, which supplement the new publication. The breakfast will be held on 21st April and is free to IPF and PDIG members.

Full text available below:

Derive benefits from property derivatives

posted Mar 6, 2010, 10:19 AM by Colin Barber

FT.com 5th March - Question: what investment tool could you use to hedge exposure, profit from a property crash or even predict what the property market’s going to do next? The answer - property derivatives.
A misunderstood investment tool if ever there was one, property derivatives require a little effort to grasp, but are a concept investors need to master. Essentially a traded swap between two separate parties, property derivatives are linked to the Investment Property Databank (IPD) index, which tracks commercial property returns. The counterparties - typically a property company with physical assets and a bank with indirect exposure to property loans - agree to what is essentially a cashflow swap depending on whether the market falls below the agreed point, or rises above it.
For the full article go to FT.com

PRUPIM pioneers use of UK Sub–Sector Property Swaps

posted Dec 17, 2009, 10:07 AM by Colin Barber   [ updated Dec 17, 2009, 10:13 AM ]

London, 16 December 2009 - PRUPIM announced today that, working closely with ICAP Property Derivatives as broker, it has successfully executed a series of UK property derivatives totaling £100 million with The Royal Bank of Scotland (RBS). The property derivatives were total return swaps, based on multiple UK IPD sub–sectors.

 “PRUPIM has completed the largest series of sub sector property derivative transactions ever as part of a portfolio rebalancing. ICAP’s focus on developing property end-user participation in this market has been particularly valuable in this process. We take the view that this kind of activity can be a valuable device in managing risk in an institutional commercial property portfolio," said Will Robson, Property Derivatives Director at PRUPIM.


“We have long believed that property specialists and institutional investors will be even more attracted to the benefits of property derivatives as liquidity grows in the sub-sectors. This transaction is a further example of PRUPIM leading the way in the development of the property derivatives market,” said Paul Rostas, Head of Property Derivatives, ICAP.


“Sub sector property derivatives are generating a lot of demand currently as clients are now comfortable with the product and can use it to match their exact property requirements. RBS is pleased to be part of such a significant transaction” said Alex Winward, Property Derivatives Trader at RBS

Q3 sees strongest derivative volumes this year

posted Dec 7, 2009, 1:31 AM by Colin Barber

A modest upturn was confirmed in the synthetic market with IPD’s Head of Indices, Angela Sheahan, revealing to delegates at the quarterly IPF-IPD Breakfast that Q3 global property derivatives trading volumes were the strongest this year – with £762m worth of contracts executed in 78 trades. The UK still dominates, accounting for £670m in 69 trades
Commenting on the derivatives trading volumes ahead of the briefing Nick Scarles, Chairman of the IPF PDIG and Grosvenor’s Group Finance Director, said: "This quarter’s derivative volumes show a continuation of the gradual market recovery, both in absolute terms and relative to the level of direct property transactions. While the substantial reduction in the number of transactions has been balanced with an increase in average deal size, what stands out is a significantly increased market participation by end users."

This sentiment was echoed by Deutsche Bank’s Senior Trader Charles Harris at the breakfast seminar. Harris told delegates: “End user activity has leapt up across the board. There are different rationales for trading now: from asset managers looking to rebalance portfolios, to investors seeking protection against further falls, while some will simply be looking for a quick property market exposure. We have hit the point now where those looking at the market and using derivatives outnumber those who are not looking and do not use the market.”

According to Alpha Beta Fund Management’s Founding Partner Robert Page, who also spoke at the briefing, there was an estimated £150 million worth of notional UK residential derivative contracts traded against the Halifax House Price Index over Q3. Page said: “To be able to buy PUT and call options on house prices will become increasingly useful for both debt markets as well as the wider real estate sector.”

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