Although only a small player in South East Asia's structured product landscape, Thailand is preparing to take on regional leaders Hong Kong and Singapore as a structured derivatives hotspot on the back of recent changes in the country's regulatory framework.
New rules proposed in August would allow investors to invest more and asset managers to allocate client's funds in a more flexible manner. The move follows earlier legislation this year, which allows for a broader range of underlyings for structured products, setting the stage for growth of the structured products market.
"The structured products market in Thailand is still in its nascent stages," said Nopadon Nimmanpipak (pictured), managing director and head of equity derivatives at Phatra Securities in Thailand. "Regulation is moving and business has been going on for some time, but the market is still limited."
However, Phatra which is one of the market leaders in the structured products market in Bangkok, has set its sight on growth, as the environment is changing in a positive way.
"New regulation enacted earlier this year allows for more flexibility in terms of [use of] underlyings and [currency] denomination, so product diversity (and market size) will grow," Nimmanpipak said. He also cautioned, however, that "it would take some time for issuers to catch up and adopt the new regulation, and to educate advisors and investors."
The market is unlikely to experience explosive growth, and Phatra prefers organic growth from its client base. In a first stage, Phatra is looking to offer fixed coupon notes and products with multiple underlyings, which, while standard in more mature markets, are uncommon in Thailand, according to Nimmanpipak. "In the current low-interest rate environment we want to offer our clients simple yield-enhancing products," he said.
"We are looking into importing relatively straightforward product structures that are popular in other markets at first, and gradually educating the Thai market," said Nimmanpipak, adding that Phatra is focused on "developing structured products as an alternative asset class for our clients and expanding the variety of our product offers."
Nimmanpipak added that educational efforts will play a central role in growing the market, and noted that Phatra is planning to ramp up activities in this regard. "As the market is opening up and investors are becoming more flexible, it's a continuous effort to educate of our clients," said Nimmanpipak. "In order to compete with other regional markets like Singapore and Hong Kong, we need to prepare ourselves, our sales teams, and our clients for a more mature structured products market."
While regulation is being relaxed, the retail segment is still hard to reach for providers, with strict product complexity requirements preventing broad access to the segment. High net worth clients will remain the majority of Phatra's clients, and its focus, according to Nimmanpipak who does not expect the retail segment will become a driver of activity in the near future.
Demand in the institutional and high net worth segments is increasing, however. Institutional investors, in particular, are increasingly interested in derivatives as they seek diversification away from traditional asset classes like equities and fixed income, Nimmanpipak said.
With a more liberal legislation, offshore competitors are looking at the Thai market. In May, Credit Suisse established a client relationship coverage team in the country to target HNW and UHNW clients.
"With the sizeable and growing pool of UHNW entrepreneurs in Thailand, the continued expansion of the domestic and regional financial markets will open up further opportunities for business growth and investor flows for entrepreneurs and corporates," said Francesco de Ferrari, Credit Suisse's head of private banking Asia Pacific.
The operation will offer a full range of open architecture-style services and products, including delta one, structured products and advisory tools and services.
"More activity is good for everyone, as structured products allocation in investor portfolios is still disproportionally small in Thailand," said Nimmanpipak. "This is an opportunity for all of us."
A total of 2,404 tranche products have been added to the SRP Thailand database in 2016, including 1,163 offers from Phatra Securities.
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