Smaller players will have better chance in market

Dan Boylan

Brokerage houses are optimistic over long-term prospects created by the introduction of Hibor Futures, saying short-term gains are unlikely but the move will strengthen Hong Kong and produce profit in the end.

'This is a great challenge for Hong Kong,' said Donald Choi, managing director of Tokyo Forex & Pullett. 'Apart from Tokyo and Sydney, there are no major interest rate products sold in Asia.' Mr Choi, who heads the local branch of the London-based interbank brokerage, said the number of credible financial products available on Hong Kong's various indexes and exchanges had grown in recent years adding to its clout as an international financial centre.

But recent dramatic attacks on a number of Southeast Asian currencies had demonstrated to Hong Kong leaders how potentially volatile the region remained to more powerful Western speculators. This summer, analysts warned of a major attack on the Hong Kong dollar that could have led to the currency slipping from its peg to the United States dollar.

Local analysts agreed the move held the possibility of devastating long-term effects.

'Hibor will certainly be good for the Hong Kong market and the Hong Kong dollar,' Mr Choi said. It would give confidence to investors eyeing Hong Kong's interest rate futures market as an investment option.

He said the HKFE had tried to launch an interbank rate before but had difficulty generating interest in the product.

Mr Choi said this time exchange executives had done their homework and had targeted the product at a more enthusiastic audience.

As an example, he pointed to his firm. Tokyo Forex & Pullett's extensive client list includes a number of smaller, but powerful, banks and financial house in Hong Kong.

In the past, Mr Choi said these firms were often left out of interest rate future opportunities because the market was dominated by bigger firms.

'It's going to give a chance to the smaller players to properly assess Hong Kong interest rates and the Hong Kong currency,' he said. 'They will finally be on an equal footing.' Hibor would also improve equality in the marketplace, Mr Choi and other analysts said. They applauded the HKFE's use of its ATS electronic trading system to handle the product.

Under the ATS system, future bids and prices will be easily displayed, allowing anyone with access to one of the HKFE's computer bidding workstations to monitor specifically what is happening in the marketplace. Previously, the open-outcry floor trading system had prevented all but the top futures traders from viewing the entire market.

Another result of more futures activity, Mr Choi said was that liquidity would build up in the marketplace, helping to keep interest rates stable, among a host of other positive financial gains.

He acknowledged Hong Kong interest rates were high because of moves to thwart Western speculation on the local currency. However, as soon as market fears abated and interest rates dipped, Hibor would probably be a big seller.