Warrant platform offers HK traders window on Europe
The Hong Kong stock exchange may be facing a new competitive threat after a European electronic trading platform specialising in warrant and structured products trading announced it will launch operations in the city from July.
Scoach, which is owned by the stock exchange operators of Germany's Deutsche Bourse and Switzerland's Six Group, has been authorised by the Securities and Futures Commission to offer services in the city. It will allow local investors to trade through Hong Kong brokers who can connect to Scoach's platform and access more than 900,000 structured products including warrants, callable bull and bear contracts, and commodities derivatives.
Scoach chief executive Christian Reuss (pictured) said a medium-sized Hong Kong broker, which he did not identify, had signed up, while 10 other brokers had expressed an interest in joining.
Launched in 2007, Scoach provides electronic trading for investors in 18 countries across Europe. 'We consider this is the right time to expand in Asia and Hong Kong is our first city,' Reuss said. 'It is amazing that Hong Kong has so many retail and institutional investors who are interested in trading warrants and structured products.'
Hong Kong brokers say Scoach could be a threat to the city's own exchange. Electronic platforms - including some dark pools, which allow investors to trade big block of shares without disclosing their identity, price or volume - have eroded turnover from traditional exchanges in the US and Europe.
Reuss said Scoach was not a direct competitor to the Hong Kong Exchange and Clearing; rather it would take on a complementary role.
'Scoach is an electronic trading platform but we are not a dark pool operator. All our price and turnover information is displayed on our website so we have high transparency,' Reuss said. 'We are also subject to very tough regulation in Europe.'
Scoach opens during European trading, meaning Hong Kong investors can trade on its platform from 4pm till 3am. 'Our warrants and products are mainly denominated in euro and US dollars instead of Hong Kong dollars or yuan at the moment so it will not be direct competition with the HKEx,' Reuss said.
A spokesman for the HKEx said it would not mind competition from any electronic trading platform but would demand they comply with the same high level of regulation as the city's bourse did.
Christopher Cheung Wah-fung, chairman of Christfund Securities, said some investors and large brokers might enjoy trading overseas products on Scoach. 'But for most local retail investors and small brokers, we are not that interested in overseas warrants as we have little knowledge about these products,' Cheung said.
'In addition, retail investors will worry that if anything goes wrong, it is not clear if the SFC or the overseas regulators will handle investigation.'
