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Asian Petroleum Review : Jan-March 2011
30 Asia will benefit from the implementation of the Vol- cker rule in the U.S. , which blocks banks from trading with their own money, known as proprietary trading. "With the disbanding of prop trading groups at U.S. banks, those businesses will not disappear, but come up in new forms, and without a doubt, the beneficiar- ies would be Asia and Europe. That will definitely in- crease trading flows out here, " he added. MARGIN COMPRESSION TO STAY But even with exponential growth in flows and the sector as a whole, margins are likely to stay com- pressed and will not return to pre-2008 levels. "Margins will not improve much next year. They're still going to be tight, " Archuleta said. "The competition we've seen from the number of banks participating in hedging activities has esca- lated over the past few years. Next year will still be challenging for every one. " With more players jostling for a slice of the lucra- tive pie, and the launch of various products traded on exchanges, price transparency has increased, further pressuring margins. "An average bid-offer spread that used to trade in, for example, 25-cent increments, is now being looked at in nickel-increments," Archuleta said. "The increase in price transparency as demand grows is going to make for a very, very competitive landscape." To mitigate the squeeze, SocGen is looking at bundling its trade financing offerings with hedging tools to make the bank a one-stop shop for customers. "It's a very tough business just pushing hedging. We're looking at leveraging our trade financing solutions and providing a complete package for our clients, " Archuleta added. SocGen expects to grow its trade financing volumes in Asian commodities by 45 percent this financial year, exceeding an earlier forecast of 20-25 percent, Eric Saux, the co-head of energy and commodities finance in Asia, told Reuters. "People are moving more and more from an oil market to an energy focus, with a clear focus on oil and gas, " Saux added. (Reporting by Jennifer Tan) (Editing by Clarence Fernandez) Thomson Reuters Asia Petroleum Review