Warrants and CBBCs activity in the Asia-Pacific on the up

The market for warrants and callable bull-bear contracts (CBBCs) in the Asia-Pacific, one of the largest in the world, registered net estimated sales of US$3.6bn for the period between January 1 and July 31, 2017, accounting for 87% of the global net sales of warrants and CBBCs for the same period, according to SRP data.

The Hong Kong market for warrants and CBBCs in July witnessed a notable increase compared to the previous month, according to the Hong Kong Stock Exchange (HKEx). A grand total of 746 warrants and 1,202 CBBCs were issued in July, in comparison to 546 warrants and 817 CBBCs the previous month. Overall, 446 CBBCs and 241 warrants matured over the month.

Overall turnover in warrants on the HKEx climbed 2.8% to HK$221bn (US$28.3bn) in July, accounting for 12.4% of the turnover of securities traded on the exchange, up from 12.3% in June. The turnover in CBBCs climbed 1.3% to HK$84.2bn in July, which, as in June, accounts for 4.7% of all securities available on the exchange.

"In warrant markets, activity and volumes have increased in Hong Kong, in line with the recent rally," said Barnaby Matthews, head of derivatives for Macquarie in South East Asia. However, retail investor activity in the rest of the Asian warrants markets has remained light, according to Matthews. "In Singapore, there has been little change in the warrant market in recent months."

Turnover in warrants was dominated by products on Tencent, accounting for over 38% of the market in July, up from 34.7% in June. The structured warrants on the Hang Seng Index and HKEx accounted for 10.2% and 9.7% of the market in July, down from 11.5% and 10.6% in June, respectively.

Similar to June, call options continue to be the preferred choice for investors, with long contracts accounting for 90% of turnover in July, as compared to 81% in June, according to HKEx. China Life ad CCB generated 97% of their turnovers from call warrants, while the Hang Seng Index and Tencent- 54% and 83%, respectively. The call products of the rest of the underlyings account for just under 100% of their turnover.

The net estimated sales across CBBCs and warrants, as measured by the holding rate of the market with regard to new issues, decreased from US$273m in June to US$124m in July, according to SRP data. The net estimated sales for warrants decreased slightly from US$57m in June to US$47m in July. SRP data indicates a significant drop in sales for CBBCs from US$216m in June to US$77m in July.

In terms of issuers, the market for warrants and CBBCs was dominated by JP Morgan and Societe Generale with net estimated sales of US$104m and US$47m for July, respectively, indicating a 60% month-on-month growth for both. The net sales of JP Morgan and Societe Generale account for 20% and 18% of the market for warrants and CBBCs in Hong Kong, respectively. Haitong International saw a sharp increase of 92% in its net sales, as measured by the holding rate of the market. On the other hand, Goldman Sachs' net sales fell by 6% as compared to the previous month.

On the Singapore Stock Exchange (SGX), 23 new contracts were listed for trading in July, up from the 20 listings in June. Nine warrants matured in July on the exchange. SGX reported that market turnover value of structured warrants for July was SG$1.4b (US$1.03b), indicating a 16% month-on-month growth.

"SGX sees growing interest in the issued products tradable on our platform, especially structured warrants volumes have been growing significantly," said Luuk Strijers (pictured), head of products, equities and fixed income, SGX.

According to Strijers, the 10 Daily Leverage Certificates (DLCs) that were listed on SGX in mid-July showed promising initial volumes. "DLCs have shown the largest growth, in terms of traded value, compared to other listed structured products in Europe since 2012," said Strijers. "DLCs have less complex product features compared to warrants, CBBCs and options, which may suit a more broad-based audience and thus higher potential for sustained trading interest and growing the overall group of traders interested in trading leveraged products," he further explained.

Investors in Asia have, according to Strijers, "shown a strong appetite for leveraged products" visible from the local markets for structured warrants, CFDs and leveraged and inverse funds. "We think that the transparency and simplicity of the DLCs listed on SGX will offer a fresh new trading option for investors looking to capture short term market moves."

When it comes to the performance of the DLCs up to now, Strijers said it is too early to give prognosis at this stage. "The major issue with regards to DLCs is that there are investors who are not properly aware of the product and its features at this stage," said Strijers who noted that both SGX and Societe Generale will continue their educational activities. "SGX is currently preparing to release more Leverage and Inverse Funds (ETFs) later this year," Strijers said.

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