HKEX structured products tumble in 2022

During 2022, a total of 46,891 structured products were listed comprising derivative warrants (DWs), callable bull/bear contracts (CBBCs) and inline warrants in Hong Kong SAR, according to the Hong Kong Exchanges and Clearings (HKEX)

Their combined average daily turnover (ADT) amounted to HK$15.9 billion (US$2.0 billion) in 2022, accounting for 13% of the total turnover on the exchange, known as headline ADT.

HKEX derivatives market had another record year, with Hong Kong fast becoming the region’s key risk management centre - Nicolas Aguzi, HKEX

This figure represented a 20.6% decline compared to 2021 - the ADT of DWs dropped by 28.3% to HK$8 billion while the turnover of CBBCs decreased by 11% to HK$7.9 billion, featuring the closet gap between the two types of structured products ever, according to SRP's calculation based on the HKEX data.

HKEX expanded and diversified its range of products and underlyings, to provide ‘customers and global investors with more choice and opportunity in Hong Kong’s markets’, stated the bourse in its 2022 annual results.

The exchange highlighted the listing of Hong Kong’s first A share structured products - the MSCI China A 50 Connect Index DWs. The products offer investors ‘a capital efficient China A share risk management tool, marking a significant milestone in the development of Hong Kong’s A-share ecosystem’.

There are currently 50 live DWs tracking the index, which consist of half call and half put, issued by J.P. Morgan, Goldman Sachs, BNP Paribas, Société Générale, Macquarie Securities, Guotai Junan and HSBC. Only 10 out of them records outstanding quantity, which ranges from 0.02% to 0.46% of their issue size. 

HKEX also noted the expanded range of CBBCs which saw US index-linked CBBCs making their return on 14 September 2022, with a total of 68 new listings up to 31 December 2022. US index structured products recorded an ADT of US$171.2 million in 2022, according to the exchange.

Société Générale, one of the top issuers on the exchange, reported increased activity around US underlying indices by net inflow following the launch of new CBBCs linked to the Dow Jones Industrial Index (DJI) on14 September 2022, and investors preferred holding their position of both DWs and CBBCs on the asset overnight due to the trading time difference.

Inline warrants, which were introduced in June 2019, have phased out from the market due to inactivity since the onset of the Covid-19 pandemic in 2020. 

In February, HKEX appointed Matthew Cheong (right) as head of structured products and platform business development, a newly-created role. Cheong joined from Goldman Sachs where he was managing director, global markets.

In 2022, the listed structured products remained the biggest driver of listings fees for the exchange contributing HK$939m, or 49.0% of the total, followed by main board equity at HK$919m, which represents a 23.8% decrease from 2021.   

By fee type, initial and subsequent issue listing fees amounted to HK$936m while annual listing fees, which are recognised on a straight-line basis over the period covered, only brought HK$3m.

Trading fees and trading tariffs relating to listed structured products generated HK$629m in 2022, accounting for 9.2% of the total, which was 19.6% lower compared to 2021. In addition, futures and options contracts delivered 16.2% growth year-on-year (YoY), reaching HK$1.9 billion.

Groupwide, revenues and other income fell by 11.9% to HK$18.5 billion while operating expenses increased by 12.5% to HK$5.1 billion in 2022 YoY – as a result, net profit was down by 19.2% to HK$10 billion.

‘HKEX derivatives market had another record year, with Hong Kong fast becoming the region’s key risk management centre,’ said Nicolas Aguzin (pictured), chief executive officer. ‘The year finished very strongly for HKEX, with the Group reporting record fourth quarter financials, offsetting in part the softer volumes and numbers in the first half.’

Click here to view the HKEX 2022 annual results.