The Hong Kong structured products market ended 2017 on a strong note with warrants and callable bull and bear contracts (CBBCs) in particular showing significant growth in the fourth quarter (26% and 33%, respectively), according to the Hong Kong Exchange (HKEX).

The average daily turnover of stock warrants and stock CBBCs picked up due to positive sentiment on individual stock outperformance. "We continue to see good turnover in structured products thanks to Hong Kong's comprehensive regulatory regime, positive market sentiment, and the flexibility and liquidity of the structured products listed on HKEX," said a spokesperson for the exchange.

The demand for structured products in Hong Kong has grown significantly over the past 15 years, according to HKEX. "In 2002, trading of warrants and CBBCs represented just 7.1% of total market turnover," the official said. "At the end of last year, it accounted for about 21%."

The demand for leveraged and inverse (L&I) products has grown since the launch of the Hang Seng Index (HSI) and the Hang Seng China Enterprises Index (HSCEI) L&I products in early 2017, accounting for 8% of ETP turnover. "L&I products are designed to provide two times (2x) and negative one time (-1x) the daily performance of their benchmark respectively. With this unique product feature, they are useful for active investors who want to pursue short-term market views to leverage returns and hedge risk," the spokesperson said.

Significant achievements in 2017, according to the exchange, included the introduction of the Bond Connect, the USD-CNH Options, the Gold futures and the Iron Ore futures. HKEX also enhanced its stock option position limit regime and extended its after-hours derivatives trading hours.

At the end of 2017, HKEX expanded its business by opening its first office in Singapore. "Singapore is a regional financial centre within the Asean region and many of HKEX's clients and investors use it as their base for the Asia region," said the official. "A [HKEX] presence in Singapore will allow us to better serve our clients and investors across Asean who trade and hedge risk through our Hong Kong-based Exchange Participants."

The company's expanded presence in Asia also reinforces HKEX's connectivity role between China and the region (a key HKEX strategy and value proposition), and "will help capture growth opportunities from fintech and the Belt and Road Initiative". "HKEX offers very liquid markets and a deep pool of capital for company's looking to IPO or raise capital post-lising, evidenced by HKEX's rankings as a top IPO destination over the last many years," the spokesperson explained.

According to SRP data, year-to-date 2018, a total of 5,129 structured products worth HK$11.9bn (US$1.5bn) have been issued in Hong Kong, up from 1,046 structured products worth HK$8.12bn for the same period in last year. Over the whole of 2017 the SRP Hong Kong database registered 19,638 new products with an average ticket size of HK$3m.

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