Itiviti's Apac President Ofir Gefen (pictured) talks to SRP about opportunities in the Chinese structured products market. Itiviti provides trading platforms globally and services 25 clients in mainland China that includes asset managers, securities houses and brokerages.

China's burgeoning commodity options trading is paving the way for further developments in the structured products market, according to Gefen.

"The commodities options market really started to build up in the last 12 months; it didn't even exist 12 months ago," said the Apac head of Itiviti. "It's something brand new and it's quite amazing to see a new market developing really from scratch. So, if you're talking about futures, options as well as structured products on indices on ETFs and commodities, yes, I definitely see that (kind of) development."

Commodities as underlying assets in China's structured products market remain the third most-popular choice among retail investors. In 2017, there were 268 structures featuring commodity underlyings although year to date, the asset class has lost some ground with FX-linked structures taking over. Most of this year's commodity-linked products in China were marketed by Agricultural Bank of China (106), China Merchants Bank (80), and HSBC (22) which used the SPDR Gold Shares ETF in all the products. However, gold (185 products) remains the most utilized commodity in the Chinese market.

Market volatility prompted by the heightened trade tensions between the US and China was one of the main reasons behind the vibrant options market, according to Gefen. "It's probably fair to say that some of the growth in the commodities market can be attributed to the brewing trade wars. For example, soybeans, we know all about the trade war that is happening, and that adds volatility to the market," said Gefen.

Commodity options trading in China started with soybean and sugar, but the market has now evolved to include corn, cotton and copper, all of which are used as underlyings in the structured products market albeit marginally. Local media reports in June show that the Chinese regulators have approved the launch of corn and cotton options for two of the country's commodity exchanges - Dalian Commodity Exchange and Zhengzhou Commodity Exchange.

"In the process, not only the exchange develops, but by adding the asset class, or the product, to the marketplace, they are also seeing more market makers. This is where we see great opportunity because this is a new business for our clients and what they are looking for is a proven, established and stable technology (to support trading)," said Gefen, adding that the lack of a standardised protocol to access exchanges remains a challenge.

"You have to develop a platform that can accommodate multiple connections and that of course, increases the cost - the cost of ownership. If you look at a more mature market, you will see a lot of convergence; the financial markets are generally converging to the FIX protocol, a unified protocol to "speak" between financial systems."

This is because in China, when an asset class has a new product added on multiple exchanges, the way it electronically connects to the exchange is not unified, according to Gefen.

Itiviti's platform supports automation, volatility trading, pricing and real time risk management, which all requires a global platform. By offering such services, the company is also taking part in improving the Chinese market, according to Gefen. "This is a platform in China that is on par with what is used by some of the most sophisticated market makers, globally," he said. "We sell, in China, the same platform that we sell in other regions." The fintech company, headquarterd in Stockholm, has close to 2,000 clients worldwide with US$200m in revenue.

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