The view from the Palais de Chaillot in Paris is impressive. Near the Trocadéro metro station, this exhibition centre, built in the 1930s, boasts views of some of Paris’s main attractions: the Eiffel Tower, the Hôtel des Invalides and a fine view of skyscrapers cutting across the clear autumnal sky.

But walk just a hundred metres or two from this tourist idyll and you can enter a variety of elegant buildings that house another exciting, if less visible, part of Parisian culture — its financial services industry.

At first appearance, the two spheres seem completely different. The romantic and architecturally indulgent Parisian landscape appears to contrast with the high tech world of derivatives, where technology is quickly outpaced and replaced and every second is crucial.

But, according to market participants, the two have something vital in common — a quintessential Frenchness that no foreigner, no matter how well-seasoned a traveller, can completely understand or master.

Indeed, many of Paris’s derivatives specialists say that proximity to their clients and sharing a culture with them is an important aspect of their business, and one of the main reasons why they operate from the city. We all know that trust is essential in derivatives trading — especially now — and sharing a language and cultural background can lead to trusting relationships.

Anne Gaignard is head of business development and sales in Paris at NYSE Euronext, the US-French exchange group whose main derivative market is Liffe in London. “We see an added value to having a local presence,” she says.

Even though trading can be done from pretty much anywhere, the importance of the human component cannot be underestimated. “We share the same culture,” says Sophie Langlois, deputy CEO of Paris-based Dexia Securities France. “When [companies] try to delocate, they lose the clients… The service isn’t the same in London.”

Her colleague agrees. “The clients prefer to talk to French people,” says Mehrak Dashab, Dexia Securities’ director of derivatives business.

Cerebral qualities

One big cultural difference between Paris and London is the educational system. While the British university system tends to encourage students to study an academic discipline that interests them, which might be physics or medieval history, and then go on to vocational training in whatever field they wish to work in, French employers tend to see mathematics and economics degrees as almost essential for working in finance.

This tradition has underpinned France’s well known prominence in the derivatives market, where quantitative skills are particularly important. Of all the main financial disciplines, derivatives and especially equity derivatives is the one where French banks such as Société Générale and BNP Paribas have the highest prominence in the global market.

Maths and related sciences are seen as more intellectually demanding than more analytical subjects which encourage students to be discursive. Therefore those with the most prestigious jobs — including in finance — tend to be from a mathematical background.

However, senior derivatives executives in Paris have doubts about whether this tradition is still serving France well.

Fabrice Bouland, deputy CEO at broker OTCex Group, says that in Paris people are often hired because of their educational background and that the employment regime is more pragmatic in London. “There’s overmathematisation and overmodelling,” he says of the French trading style.

“Traders have more feeling in England. They have to feel the market,” says Dashab at Dexia. His colleague Langlois agrees: “The education in England is based more on way of thinking than strict content.”

Attitudes to this may be changing. Gaignard at NYSE Euronext says that the French over-emphasis on technical qualifications was prevalent “notably at the beginning, but it’s less true now”.

“It’s a debate in France,” says Langlois. “We now say a mix of origins and cultural backgrounds is probably a plus [in recruitment].”

Hot products

The kinds of derivative products traded in Paris do not differ particularly from those in many big financial centres, but there are local strengths. Unsurprisingly, there is a tendency to use products related to the euro rather than the dollar.

Fewer and fewer CAC 40 equity baskets are being traded, but Depras highlights stock options as a very active area and says commodities are increasingly important.

Gaignard agrees: “Commodities are really growing at the moment and there’s strong potential for them.”

Volume in the six agricultural derivatives listed at NYSE Liffe Paris has been growing steadily, from 530,000 contracts in 2005 to 2.7m last year – a figure that 2009 had already surpassed by the end of October. The biggest contracts are the Milling Wheat, European Rapeseed and Corn Futures.

After declining sharply from 2005 to 2006, equity options volumes have been stable at around 44m contracts a year, but have already reached that total in 2009 by October, so this year will show growth. This year France is the fifth biggest market in Europe for listed equity derivatives, behind Germany, the UK, the Netherlands and Spain, though France is ranked ahead of Spain in stock options.

But the firms trading in Paris are not limited to the products listed at Euronext Paris. As in most other cities, market participants divide their time between domestic and international markets – roughly 50:50, according to some estimates. “It’s very international. It’s typically not nationally driven at all,” says Bouland at OTCex.

Gaignard explains that “there is an increasing number of foreign members who deal with French products, and there is an increasing number of French market participants who deal with foreign products.”

NYSE Euronext is harmonising its various subsidiaries – which also include the Amsterdam, Brussels and Lisbon stock exchanges – but retains a local presence. “The two visions aren’t opposed to one another,” Gaignard says.

Hedge fund renaissance

Marc Souffrir, head of GFI’s Paris operation, says there are fewer speculative actors in the Paris finance community than in the UK. The market is dominated by more conservative institutions. There are few hedge funds, proprietary traders and algorithmic traders, but a lot of asset managers, insurers and other more risk-averse companies.

However, this mix may change as regulation and tax laws change in other countries. “After the crisis, we’ve seen more hedge funds than we used to have,” says Souffrir. “A lot of people have left London.”

Dominique Depras, director of markets infrastructure at the Association Française des marchés financiers, argues: “The advantage of the Paris derivatives industry is that it is close to a community of major fund managers and also to a sizeable, active pool of government and corporate issuers.”

These issuers of stock and bonds have hedging needs, which feed the banks and securities firms providing derivatives advice and execution.

Dispersed networks

One thing that strikes an outsider to the Parisian derivatives industry is that it is spread around the city, rather than being concentrated in one area. The culture is very different from that of London, with much less socialising and drinking after the markets close.

“The community sense is less strong… In London you meet more people, bubbling with ideas and information,” says Bouland.

Langlois says there are “not enough people for a community”. “We’re convinced that being close to our clients is important,” she says. She adds that there is “not a sense of community but a sense of relationships”.

This is not only because there are fewer derivatives professionals in Paris than in London or New York, but because offices are more geographically dispersed. There are concentrations near the Opéra and La Défense, but these are far apart.

Souffrir agrees. “It’s not a tight-knit community,” he says. “We don’t have a City in Paris, it’s much more fragmented.”

It hasn’t always been this way. People were much closer when there was a pit than now that electronic trading is used. Souffrir reflects: “There are people who started in the pit and it was a small market… They’ve known each other a long time.”

With Paris so close to London, there is obvious concern that traders will be attracted to cross the Channel for work.

“Everybody wants to go to London,” says Dashab. “We try to get brokers — they’re hard to get. French banks at the moment stay in France. If one day they start to move to London it could be very difficult for France and for Paris.”

Nevertheless, Dashab is convinced there is a “potential for expansion rather than relocation”.

But with a new 50% tax rate for higher earners set to be introduced in the UK in April, “We think that more and more brokers are finding a new interest in Paris,” Dashab says. “With a new tax in London, France will be more attractive than it used to be.”