HK, S’PORE SEEK BIGGER SLICE OF DERIVATIVES MART
Regulators in talks to attract billions of dollars of banking business, say sources
HONG Kong and Singapore are seeking to snare a bigger share of the US$540 trillion (RM2,306 trillion) global derivatives business, taking advantage of tough new United Kingdom and European banking rules and uncertainty created by Britain’s plans to leave European Union.
Over the past five months, regulators from the two Asian financial centres have been separately holding talks with the Asia Securities Industry and Financial Markets Association, which represents global lenders in Asia, said five people with direct knowledge of the matter.
At the centre of the discussions is what kind of regulatory changes would be needed here and in Singapore to get more banks to book their derivatives business in one of the two places.
If the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) are successful, they could lure billions of dollars of banking business.
These derivatives would include products such as interest rate swaps or foreign exchange derivatives, which allow companies and investors to hedge their exposure to interest rate rises and currency swings.
Asia has traditionally accounted for less than 10 per cent of the global over-the-counter derivatives market, according to Bank for International Settlements data.
Global banks have typically held the majority of Asia-related trades on their European balance sheets, with London being a major booking centre for such deals.
This has allowed them to gain economies of scale by aggregating their capital and infrastructure in one or two locations, while London also has a deep talent pool of employees with expertise in managing and processing the trading book.
During the past three years, though, many banks have begun to review their Asia trade booking arrangements because of new UK and European rules that have made Britain less attractive as a global hub for Asian risk.
Brexit has made the situation more urgent by prompting many banks to move some of their operations, including trading books, out of London. This has sparked broader internal discussions over whether more of the London book holding Asia trades should also be moved to Asian financial centres.
Banks looking to book more trades in Asia include HSBC, Standard Chartered, UBS and Credit Suisse, said a source.
Booking derivatives trades here and in Singapore are currently expensive for global banks because they are not yet allowed by HKMA and MAS to use their own internal risk-management models. Reuters