View from City Road: Warburg looks at its options

BELATEDLY SG Warburg is attempting to fill a yawning gap in its range of services. While other securities firms in London in recent years have built up a sizeable business in derivatives - futures and options - Warburg has been caught napping.

In effect it has admitted its mistake by setting up a working party to examine the issue and last year recruited 24 people in equities, fixed interest and advisory departments. In the context of the total workforce of 3,000 this is insignificant and means Warburg remains far behind its rivals. However, it continues to recruit and is currently hiring derivatives systems specialists.

Warburg has missed much of the growth in the market already. Volumes on the London International Financial Futures and Options Exchange almost doubled last year and the over-the-counter market - professional investors dealing direct with counter- parties rather than on an exchange - is ballooning.

But both Liffe and the OTC will continue to grow and Warburg cannot afford to be left behind, even if margins in these markets are not as high as they once were.

More particularly, skilled use of derivatives would allow Warburg to use more of its own money in transactions while controlling its risks.

Whereas rivals such as Salomon, and to a lesser extent Goldman Sachs, use their own balance sheets for 'proprietary trading', Warburg does not, at least not to anything like the same extent. Once its derivative expertise develops, however, it would be able to use its own money as principal to a greater extent, while limiting its exposures.

Expect Warburg to flex more muscles on its own behalf in the next few months.