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Tuesday, April 18, 2017, 20:33

Regulators urged to expand structured product scope

By Evelyn Yu

The Financial Services Development Council (FSDC) has called for Hong Kong Exchanges & Clearing (HKEx) and the Securities and Futures Commission to expand the scope of listed structured products available in Hong Kong to maintain the city’s competitiveness as a world-leading marketplace in structured finance.

Despite Hong Kong historically having some of the highest trading volumes in listed structured products – the 2015 turnover was greater than that for 18 other stock exchanges in America, Asia Pacific and Europe – there are only two types of listed structured products listed on the Exchange at present, namely vanilla warrant and Callable bull/bear contracts (CBBC), both leveraged products.

The regulatory regime permits a much wider range of products and underlying asset classes but the variety is very limited and the most actively traded warrants and CBBCs are linked to a small number of domestic Hong Kong blue-chip stocks and the Hang Seng Index.

Drawing on experience from European markets, the FSDC asked the HKEx and the Securities and Futures Commission to consider introducing three categories currently available in European markets, which include Yield Enhancement Products, Participation Products and Capital Protected Products, as well as two non-leveraged investment type products namely Discount Certificates and Bonus Certificates.

"The two products in Hong Kong are very good for trading, if the volatility in stock exchange goes up, the issuance goes up, because people want to capture the chance of a relatively large trading profits ... while the European products are designed for more conservative investors,” Mark Dickens,executive vice-president and head of listing for HKEx, said in a media briefing onoptimizing Hong Kong’s listed structuredproducts market.

Introducing such new products was not to replace the current products but supplement each other; such expansion held great promise in a low interest-rate environment, he believed.

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