Hong Kong think tank calls for more incentives to promote city’s structured products market
Financial Services Development Council recommends incentives to encourage the introduction of discount certificates and bonus certificates
Government think tank the Financial Services Development Council issued a report on Tuesday recommending changes designed to maintain Hong Kong’s role as one of the world’s leading structured product markets.
The FSDC said it is encouraging Hong Kong’s market regulators to consider the introduction of discount certificates and bonus certificates in an attempt to offer a broader spectrum of different types of risk in investment products.
“There is considerable interest in issuance of these new products, especially by those investors looking for safe, small gains,” said Mark Dickens, a member of the FSDC. He estimates the growth potential of new structured products to be comparable to the existing unlisted equity-linked investment market of around HK$167 billion (US$21.5 billion).
In 2015 Hong Kong’s stock exchange recorded turnover of HK$6.34 trillion in listed structured products based on average daily figures, the highest in the world, according to FSDC data. Discount certificates and bonus certificates are permitted under the current regulatory regime and are already popular among retail investors in unlisted form through private and retail banks.
There is considerable interest in issuance of these new products, especially to those investors looking for safe, small gains
But issuance of these products has been hindered by a slow regulatory approval process and high costs, Dickens said. The large size of the market may have also led both regulators and market participants to rely on existing trading practises and overlook the need for improvements.
Consequently, listed structured products in Hong Kong are limited to two investment types – vanilla warrants and callable bull/bear contracts, both of which are highly traded and high risk.