To celebrate the 10th edition of SRP’s Asia Pacific conference, we look back at some of the main headlines that shaped the region.

2021

ESG fast became a theme of interest for APAC issuers and investors alike. 

United Overseas Bank (UOB) distributed close to 300 ESG-linked flow structured notes as of the end of 2020, with a notional value of approximately US$250m. The Singaporean bank began to consider ESG as part of its full investment solutions catalogue from late 2019.  

HSBC China launched a structured deposit linked to the Solactive China Future Consumers ESG Screened PR Index to capitalise on China’s carbon neutrality initiative

“We are seeing growing customer interest in equity-linked structured notes with underlying stocks in the information technology sector,” said Jacquelyn Tan, head of group personal financial services at UOB.

Singaporean exchange SGX’s ESG First sustainability agenda saw the co-launch with FTSE Russell of a suite of ESG derivatives - SGX FTSE Emerging ESG Index Futures, SGX FTSE Emerging Asia ESG Index Futures, SGX FTSE Asia ex Japan ESG Index Futures and SGX FTSE Blossom Japan Index Futures in January 2021.

J.P. Morgan issued its first ESG index-linked structured note to a private bank in Hong Kong SAR in January and hedged an investment-linked policy (ILP) linked to the S&P ESG Global Macro Index in the second half of 2020. Distributed by a large insurance company in Southeast Asia, the ILP deal marks J.P. Morgan’s inaugural hedge providing service for an ESG-linked structured product in Asia.  

HSBC China launched a structured deposit linked to the Solactive China Future Consumers ESG Screened PR Index to capitalise on China’s carbon neutrality initiative. The bank exclusively licensed the index to wrap it as a two-year up-and-out fully protected product which struck on 5 March.

In China, one of the less flexible markets, the balance of structured deposits for Chinese small-medium banks at the end of December 2020 fell 37.8% to CNY3.9 trillion (US$594.3 billion) compared to the end of December 2019. As a whole, the group of banks  met the requirement to decrease the issuance of structured deposits by the end of 2020 to two-thirds of the level recorded at the end of 2019, according to the latest data released by the People’s Bank of China (PBOC).

Goldman Sachs, Morgan Stanley and J.P. Morgan said they would delist almost 500 structured warrants and other derivative products linked to the Hang Seng Index which contain the three telecom stocks (China Telecom, China Mobile and China Unicom) banned by an executive order signed by outgoing president Donald Trump. The order which came into effect in January banned American investors from owning or trading in the stocks of companies said by the US government to be linked to the Chinese military.

In Australia, Citi opened its second Australian wealth hub in Sydney targeting wholesale investors. The move comes as its sales volumes of structured products for February 2021 reached a four-year high. Following the launch of its first wealth hub in Melbourne in April 2019, Citi saw investment asset under management increase by 12%.

The Hong Kong Stock Exchange (HKEX) was working on the framework to enable the listing of daily leverage certificates (DLCs) involving liquidity provisions and underlyings, having received a few proposals from potential issuers. The bourse implemented the project after spending ‘quite a bit of time’ in settling the delisting of hundreds of structured products, which were triggered by US sanctions in January, according to three senior market sources.

The Australian Securities and Investment Commission (Asic) sought feedback on its proposed good practices for exchange-traded products (ETPs) and other investments tracking crypto assets, including structured products, in a response to rising interest from market participants.

The paper covers several proposals spanning the Information Sheet 230 (INFO 230) expectations, responsible entity obligations, listed investment entities and Australian Financial Services licensing.   

‘The rise in value of crypto-assets globally has seen a sharp increase in retail investor interest in investing in crypto-assets,’ stated the regulator. ‘There’s a need to identify good practice in complying with existing regulatory obligations for such products.’   

The fourth largest bank in Thailand by assets unexpectedly took the lead in the domestic league table in H1 21 after closing seven USD/THB-linked trades totaling THB24 billion (US$748m), SRP data shows. With a tenor of one to seven years, the autocallable fixed coupon notes (FCNs) which struck on 8 March, offer a quarterly coupon of 0.65% to 1.05% pa - six of the notes sold US$119.1m each while one sold US$32.9m, according to the 1H 21 financial statement of Krungthai Bank (KTB). These products were the only ‘long structured debentures’- defined as autocallable notes, with a tenor longer than 270 days by Thai regulation, issued by KTB in H1 21.  

2022

The traded volume of structured products in South Korea fell by 20.1% in 2021 year-on-year (YoY) despite a rebound of equity-linked securities (ELS), a 42.1% decline from the peak seen in 2019. While ELS grew 15.1% to KRW48.8 trillion collected from 15,807 products in 2021 YoY, all other types of structured products declined by issuance amount, SRP data shows. 

Derivative-linked securities (DLS) and derivative-linked bonds (DLBs) down 31% and 33.7% to KRW5.4 trillion (766 products) and KRW9.4 trillion (949 products), respectively, and equity-linked bonds (ELBs) saw the biggest decline by 65.6% to KRW9.5 trillion (1,542 products) YoY. The overall issuance amount reached a five-year low at the end of 2021, according to SRP data.

Investors in Singapore are increasingly looking to diversify their exposure to the US market using a variety of trading strategies and products -Marcus Ng, Société Générale

UBS (China) set up a team to offer structured solutions to local financial institutions to hedge their exposures to foreign currencies (FX) and interest rates. The currencies consist of US dollar, euro, pound sterling, yen, Australian dollar, Swiss franc and Canadian dollar while interest rates include main FX benchmark interest rates, such as the US dollar fixed term swap agreement rate (CMS). 

The use of derivatives in China has rapidly grown in recent years, but there remains plenty of potential for their further adoption, according to the Swiss bank, which obtained its derivative trading licence in the country back in 2005.

Discussions around shortcomings in the structured deposits market continued in China as market size further declined in 2021. The average monthly structured deposit balance in China fell by 37.7% to CNY6.15 trillion (US$967.5 billion) in 2021 year-on-year (YoY), according to the central bank People’s Bank of China. The shrinking market share of structured deposits is directly related to the landmark regulatory framework released in October 2019, which was introduced to curb arbitrage, bad debt and 'fake structures’ in the Chinese structured deposits market and was followed by a series of discretionary ‘windows guidance(窗口指导).

In a first for the Asian market, Société Générale (SG) has issued four daily leverage certificates (DLCs) linked to the S&P 500 on the Singapore Exchange (SGX), nearly five years after it entered the space.

Available in long and short versions, the DLCs went live on 4 March offering a leverage of five times the daily return of the S&P 500.

"Investors in Singapore are increasingly looking to diversify their exposure to the US market using a variety of trading strategies and products," said Marcus Ng, vice president and cross asset listed distribution at SG. "The introduction of DLCs tracking US equity indices enables Singapore investors to gain long and short exposure to the US market during Singapore trading hours through their SGX securities trading account using Singapore dollars."

In May, HSBC Global Private Banking launched online trading for structured products in Asia via mobile. The new feature allowed private banking clients with assets booked in Asia to trade fixed coupon notes (FCN) on their mobile phones, alongside cash equities, exchange-traded funds (ETFs) and foreign exchange (FX) which are already available on the bank’s trading platform. The UK bank said that support for equity linked notes will be added later in 2022 to ‘enable clients to structure their own investment ideas under our open architecture framework in real-time’.

Some 33 listed derivative warrants (DWs) on the MSCI China A50 Connect Index went live in August in Hong Kong SAR. Morgan Stanley, J.P. Morgan, BNP Paribas and Goldman Sachs launched a combined 33 DWs on the MSCI China A50 Connect Index (‘A5C’) on 3 August, respectively, three trading days from the listing date as required by the Hong Kong Exchanges and Clearings (HKEX).  

Interestingly, SRP reported in August 2022 that new listings of DWs and callable bull/bear certificates (CBBCs) in H1 22 hit their lowest levels in two years, leading to a fall of listing revenue at HKEX. A total of 6,157 DWs and 19,413 CBBCs went listed on Hong Kong Exchanges and Clearing (HKEX) from a group of 16 issuers in H1 22, a decrease of 25.3% and 7.6%, year-on-year (YoY) respectively. The figures dropped 27% and 10.9%, respectively, compared with the peak in listings recorded six months ago.   

The largest Malaysian bank began issuing structured warrants over companies listed on the Hong Kong Stock Exchange, as market sales and volumes increase year on year. Maybank investment bank launched a batch of 16 long/short structured warrants on Bursa Malaysia, tracking eight Hong Kong-listed stocks. With a concentration in the automotive and e-commerce sectors, the eight underliers include Alibaba, JD.com, Geely, Tencent, Ganfeng Lithium, Meituan, BYD and Netease traded on the Hong Kong Stock Exchanges and Clearings (HKEX). Each of them is available through a call and put structured warrant.

Finally, Société Générale (SG) launched the first batch of CBBCs on US indices being listed in Hong Kong SAR. The underyings are the S&P 500, Nasdaq 100 and Dow Jones Industrial Index (DJIA), each of which is tracked by four CBBCs comprising two bulls and two bears. The 12 products with a knockout feature were launched on 8 September, three trading days before their listing as required by HKEX.

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