The Hong Kong exchange will host new A-share derivative warrants trading, while Leonteq will launch a capital-protected certificate on the Swiss average rate overnight (Saron) in Switzerland.

The Hong Kong Exchange and Clearing (HKEX) is gearing up to debut derivative warrants tracking broad-based equity exposure to China in the second half of 2022.

Linked to the MSCI A 50 Connect Index, the first batch of derivative warrants (DWs) is expected to be introduced by Huatai International Financial Holdings, an offshore arm of China’s Huatai Securities, this year, two senior sources told SRP.

CITIC Securities International is also preparing to become a new issuer of listed structured products on HKEX, namely DWs and callable bull/bear certificates (CBBCs).

It’s a very quiet market as a result of the regulatory changes that have taken place Korea in the past 12 to 18 months

HKEX is encouraging investment banks to issue structured products such as DWs on the back of the MSCI A50 Connect Index, which tracks the performance of 50 key Shanghai and Shenzhen stocks available via Stock Connect, a cross-boundary investment channel between Hong Kong SAR and China. 

The South Korean market registered 8,976 new products, a decrease from 10,155 posted in the first half of 2021, comprising 7,418 equity-linked securities (ELS), 278 derivative-linked securities (DLS), 843 equity-linked bonds (ELBs), 415 derivative-linked bonds (DLBs) and 22 equity-linked deposits (ELB)

“It’s a very quiet market as a result of the regulatory changes that have taken place Korea in the past 12 to 18 months,” a senior salesperson at a European investment bank told SRP. “In a year like this, there’s very little pickup that we expected on fixed income [underlying assets] because there’re regulatory hurdles to launching ELS and DLS in Korea.”

Effective from February 2021, underlying assets are limited to five major indices – Kospi200, S&P 500, Eurostoxx 50, HSCEI and Nikkei 225 – when banks sell retail investors equity-linked trusts that invest in ‘complex investment products’, which can lead to principal loss higher than 20%.

Following the Allianz Structured Alpha saga, according to Markov Processes International (MPI), a US fintech provider of software and services for analysing investment performance and risk, an analysis of the Structured Alpha fund - AllianzGI Structured Return Fund Institutional Class (AZIIX) - shows that the steady ‘alpha’ that attracted investors was nothing more than a stream of option premiums as long as markets remained stable. There was little to indicate that investors in the fund would be protected if a significant market downturn were to happen.

Allianz Structured Alpha is one of many prominent volatility-trading hedge fund blow ups triggered by market volatility during the Covid crisis of 2020: the pace of the market sell-off had a particularly large impact on the options positions held by Structured Alpha funds as net buyers of put options designed to hedge against losses - Allianz Structured Alpha products 250, 500, 1000 and 1000 Plus suffered significant losses ranging from 33% to 70% and upward of 90% depending on the strategy and lost combined US$4 billion in client assets.

Leonteq has issued a capital protection certificate on the Swiss average rate overnight (Saron) in Switzerland. The five-year product offers a quarterly coupon equal to 1.25 times the performance of the three-month CHF Saron. At maturity, it returns 100% of the nominal invested.

It is the first time a structure on the Saron – an overnight rate based on the Swiss repo market – is seen on the SRP Switzerland database.

Capital-protected products only make up two percent of the listed products in Switzerland, with barrier reverse convertibles (more than 13,000 listings and an 80% market share) the most popular product category in the Swiss retail market.

Also in Switzerland, Swiss investment solutions provider Capital Vision has licensed its structured notes platform, Vizibility, to Miami-based broker dealer network.

Miami- based Independent Broker Dealerʼs Insigneo has reached an agreement with Vizibility to implement the structured products platform for the management, administration, and real-time portfolio developed by the Swiss firm.

Insigneo is seeking to facilitate its network of investment professionals the monitoring, research, and execution of structured products while improving productivity and time efficiency.

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