Hong Kong Exchanges and Clearing surprised the market last month by announcing its purchase of a stake in BondsInAsia, an electronic bond trading portal that had been operational for only three months. Albert Cobetto, chief executive of BondsInAsia, however, said the acquisition was not impulsive but the result of a long consultation process. 'We had been talking for a long time, working [with the Exchange] on ways to develop the bond market,' Mr Cobetto said. The portal's discussions with the exchange had included studying ways of improving the market in Hong Kong for bond-related futures. 'Futures contracts are very important tools to build up the local bond market, because with them fund managers have a better tool to hedge their local bond positions,' Mr Cobetto said. 'Government bonds are the market's benchmark, so if portfolio managers cannot hedge government risk, it makes it harder for them to trade corporate bonds too.' At present, the HKEx only offers futures contracts for three-year Exchange Fund Notes, though local government bonds are issued with five-year maturities. The trading of government bonds is BondsInAsia's major source of business. Since officially launching in January, the company, which provides an Internet-based platform for trading Hong Kong bonds, Singapore bonds and G3 currency (US dollar, yen and euro) Asian credits, has recorded an accumulative turnover of US$1.9 billion. The trading of government bonds is responsible for about 75 per cent of this activity. BondsInAsia is not the only Internet bond trader in Hong Kong. Professional traders can use Bloomberg's private network Tradebook to trade Asian bonds electronically. Asiabondportal, although it is going through a large-scale corporate restructuring that has included significant job losses, also still trades bonds online. But many bankers and fund managers say they prefer to trade bonds the traditional way rather than over an Internet platform. Mr Cobetto, however, said they were slowly changing their ways and that BondsInAsia had performed very well since January. 'On some days, we probably have had [a turnover] as high as 10 to 15 per cent of the market,' he said. He said that the company's online technology allowed bond traders to reduce their traditional trading costs by up to two-thirds. 'But it will take time for us to really become another major channel for liquidity,' he said. Major stakeholders in BondsInAsia, other than the HKEx, include HSBC, Deutsche Bank, Citigroup, BNP and CSFB. HSBC, Deutsche Bank and Citigroup are three of the most active bond trading banks in Hong Kong and are collectively responsible for about 40 per cent of all bond trades in Hong Kong. Under its franchising structure, BondsInAsia has invited other active local dealers to join its trading system as liquidity providers through shareholding participation.