Built Lehman Brothers' European ETF business:

With the success of the ETFs in the US and their arrival on the old continent, Lehman Brothers needed to build capacity and presence. I was asked to build the firm's European ETF trading activity.


Although this product is conceptually simple to understand, its implementation was expected to meet numerous practical difficulties: 

  • The Primary Market of the global products would be intensive operationally: the antiquated settlement systems would have to cope with some of the worse king of program trades: multiple countries, currencies, tax and regulatory environments, settlement on non-standard dates, out of currency (but free of payment!) and via the Asian and US subsidiaries

  • Derivatives would be required between entities. This had tax, compliance and accounting consequences. It was also going against the firm's costly restrictions on reciprocal balance sheet usage

  • Due to the time zone differences, the underlying indices would have to be quoted on the Secondary Market while the relative markets were closed. That wasn't preventing the numerous exchanges to place stringent quoting requirements, enforced with hefty fines and sanctions. Lehman had no quoting equipment, and no resources to build them

  • Lehman's business heads are to substantiate the benefits and risks of new activities in front of a multi-disciplinary panel of departmental managers called the "New Product Committee". Fact is that much simpler projects had met painful rebuffs in the past


  • Coordinated meetings between the various European operational departments (Middle, Back, Finance, Tech Support) to suggest a settlement procedure. 

  • Coordinated meetings with Compliance, Tax and Accounting to find an optimal derivative structure to hedge the bulk of the positions. Chose futures both for pricing information and to hedge the residual amounts.

  • Coordinated meetings with the other regions at the Operational and trading level to finalize the global proposal.

  • Created the Excel infrastructure to download and maintain the weights of the new indices. Combined that information with the ETFs creation/redemption files to compute the fair values of the products

  • Used my good relationship with the IT managers to obtain the implicit allocation of "3/8th of a developer" to create an interface with the exchanges. Used my IT proficiency to make Excel drive that interface into quoting the ETFs as per the Exchange requirements


Various benefits resulted from this large team effort:

  • The New Product Committee fully accepted the project, very much like a formality.

  • The implementation was smooth, and the firm is actively quoting and trading the iShares, IndexChange, UBS-Fresco, CSAM, SPYs and QQQs ETFs.

  • The activity has generated $2 Mn of commissions in the first half year of 2003.

  • I was invited by the Swiss Exchange Authorities to participate in creating the ETF regulatory framework