HKEX will offer MSCI derivatives

HONG KONG/SINGAPORE: Hong Kong Exchanges and Clearing Ltd is launching derivatives with index provider MSCI Inc in a deal that hurts rival Singapore and boosts its global appeal amid US warnings that Chinese pressure on the city’s autonomy threatens its future as a financial hub.

The announcement comes days after China’s National People’s Congress said it would impose new national security legislation on Hong Kong, which US government officials have warned could bring into question the city’s special economic status under US law.

On Tuesday, White House spokeswoman Kayleigh McEnany said President Donald Trump had told her “it’s hard to see how Hong Kong can remain a financial hub if China takes over.”

HKEX said yesterday that it would launch Asia and emerging markets futures and options contracts under a licence deal with MSCI, giving it access to a suite of MSCI equity indexes.

HKEX said it would launch an initial 37 futures and options contracts.

The contracts are currently listed on Singapore Exchange Ltd (SGX).

SGX said in a separate statement that it would not renew its licencing agreement with MSCI when it expires in February 2021, other than for the MSCI Singapore index.

The Singapore bourse said that the loss of the contracts could hit its 12-month net profit by between 10 and 15%.

“What we saw in Hong Kong exchanges was a larger customer base, particularly the access to Chinese institutional and retail investors,’’ said Henry Fernandez, chairman and CEO at MSCI.

“We also saw the ability to have a large market for index options and that market is the gateway to structured products.”

HKEX chief executive officer Charles Li said that international and Asia-focused products were a “key missing part of the puzzle” for the exchange, as investors typically came to the bourse to trade HK and mainland China linked products.

He denied that there was any political aspect to the announcement. “This is a commercial arrangement that has its own timing and its own processes. We are not coinciding with anything ... politics comes and politics goes.”

The Hong Kong bourse, which bought the London Metal Exchange in 2012 and failed in a bid for the London Stock Exchange last year, said in its 2019 three-year strategic plan that it wanted to diversify the range of products it offers, which have typically focused on its China links.

The new contracts, which will use the MSCI Emerging Markets Asia, MSCI China Free, MSCI Singapore and MSCI India indices, among others, are subject to local regulatory approval.