How much am I worth? Interest Rate Exotics Derivatives Trader, top-bracket investment bank

A panel of headhunters gives its assessment of typical London pay packages: Salary - 115,000 (€172,000); bonus - up to 500% depending on performance (director

level or at least five years-plus experience).

For those who make their living outside the City of London, job descriptions

within the Square Mile must seem more and more perplexing. Everybody

knows what an equity salesman does, or a corporate financier or even a

straightforward futures' dealer, but an interest rate exotics

derivatives trader?

Maybe they should learn: Richard Fraser of RJF

Global Search and other headhunters say that the market for such people

has grown phenomenally and continues to do so whilst more traditional

and commonplace financial instruments continue to disappoint.

'Traders who deal in Bermudans, index amortising swaps, knockout

corridors, power reverse duals, path-dependent structures and callable

structures as well as hybrid products, are all paid a premium above

vanilla traders. Why? Because the products are more complicated,' he

says. Really.

Richard Melkonian of Napier Scott agrees, saying that the exotics market

has become - well, indeed more exotic.

'The beauty of the exotics market is that it is boundless in scope:

conceive of a need and build a product to suit. Or build a more complex

product, and there will be a use and a buyer. In a very complex

financial universe, this is realistic not cynical,' he says, adding that

since the early to mid-1990's, when the proliferation of exotic options

stormed the rate markets, 'we have not looked back.'

So what sort of a person do you need to be to create such alchemy?

Melkonian says that exotics traders have an impeccable mathematical

background - ideally with a postgraduate degree in Math or a related

subject, maybe up to PHD level. Many move into the market from a

quantitative analyst position.

The ideal exotics dealer is half trader

and half quant, with an all-engrossing knowledge of how even tiny

movements in interest rates can radically affect their business. Given

that quality people of such backgrounds are rare, salaries are high with

banks often going all out to get the person they think is right for the

role.

'There is strong demand right now for high calibre individuals with a

successful and profitable track record - especially for those with

a knowledge of hybrid products (combined interest rates with another

asset class such as equity derivatives, for example),' says Fraser.

Melkonian says pay is part of the draw: 'Remuneration, as with all traders,

is a moveable feast. But a top-tier exotics trader is worth all a bank can pay.'

How much moolah are we talking? Melkonian says an interest rate exotics

trader at associate Director - VP level may earn a basic of 60-90,000

with total compensation anywhere between 350-500,000. At Director

level, expect this to rise to 90-110,000 basic, with total pay soaring

between 500,000-1m. At Managing Director level one is looking at a

total package somewhere between 1.5m-3m, depending on performance, of

course.

Fraser says a trader with three to four years' experience, with

a good, profitable track-record, is looking at a basic of 80-100,000

plus 100-350% bonus; somebody with five years or more experience

125-150,000 plus a bonus of up to 500%. Richard Fisher of Alexander

Mann suggests senior traders can pull in anywhere between

400,000-600,000.

And the prospects, right now, couldn't look better. Many banks are

actively hiring interest rate exotics people, including most of the

bulge bracket institutions as well as the Royal Bank of Scotland and

Barclays, whilst pay as a percentage of profits is rising: Melkonian

says that whilst last year a typical payout was 4-5% of attributable

profits, this year it is expected to rise to 6-8%. Yet even that may not

satisfy some traders.

'The relative dearth of seasoned talent in a growing and constantly

evolving market means that there should be a fair amount of personnel

movement come 2005 Q1 and Q2,' he predicts.

Which means that for those who don't yet know their path dependent

structures from their callable structures, there may still be time to

learn.

Figures and commentary by RJF Global Search, Napier Scott and Alexander

Mann.