Dealers turn to mid-cap and EM deal-contingent trades

With falling foreign exchange volatility and increased competition eating into lucrative deal-contingent hedge revenues, dealers are increasingly looking at medium-sized and emerging market transactions.

The hedges give purchasers protection against FX movements between the announcement of an M&A deal and its completion. Increased competition in this space has seen the price of the hedges slide from 25% of the cost of an equivalent option in 2015 down to as low as 15%.

As a result, dealers are