HSBC has built a market-leading position in renminbi derivative products in Hong Kong (see RMB House of the Year award), and has also grown a number of other business lines such as prime broking and equity derivatives in addition to being a major stakeholder in the development of over-the-counter clearing locally.
Despite being a latecomer to the prime financing business – launched two years ago in Asia, and just three years ago globally – volumes of assets under management have increased significantly.
In addition to servicing Chinese hedge funds based in Hong Kong and the mainland, the bank has added GLG Partners as a major client with around 25 hedge funds across Asia now using the bank's prime broking services. The bank has an estimated $3 billion in assets under management from Asia-based hedge funds as of April 2013 according to an AsiaHedge survey.
"We already had a strong custody and hedge fund administration business combined with excellent forex capabilities, so the thinking behind launching prime financing services was to offer this to our clients in a single platform," says Rakesh Patel, head of cash equities for Asia-Pacific.
With what is believed to be the largest market share in RMB derivative transactions, HSBC is well positioned to provide hedging solutions to its clients, where volumes in RMB corporate derivatives services have increased by over three times this year. The bank says turnover for RMB options is three times greater than for non-RMB options in 2013.
An example of the bank's strong product and market execution capability is a deal it executed for a major player in the Hong Kong real estate market who issued a CNH bond but had financing needs in USD. The bank provided a deliverable CNH cross-currency swap for CNH 1.8 billion ($294 million) in April 2013. The client's overall USD interest rate cost (with CNH bond and cross-currency swap) was reduced by around 20% per annum when compared with issuing a USD bond in the primary market due to the interest rate differential between CNH and USD.
"This highlights HSBC's strong product and market execution capability and close collaboration with our internal investment banking team to deliver first-class hedging solution," says Ivan Wong, head of corporate sales, Greater China at HSBC in Hong Kong.
In warrants, the bank is number one in terms of outstanding volumes in single-stock warrants and callable bull/bear contracts (CBBCs) in Hong Kong and issues close to 1,000 warrants a year linked to Hong Kong names.
"We are the leading market-maker on single-stock names with around 5-10% on listed options and OTC volumes each day," says Nicola Pantone, head of equity derivatives sales, Asia-Pacific at HSBC in Hong Kong.
The bank was also among the first to create an e-commerce platform internally to service its retail and private banking clients.
In equity derivatives, the biggest success this year has been facilitating the transfer of risk from the retail market to the institutional market through dispersion trades where the bank estimates it has been the largest player over the past two years.
"On one hand we have fixed-strike risk from equity-linked notes and accumulators or decumulators. This portfolio of fixed-strike risk on single stocks is then repackaged through volatility swaps and trade dispersions with major volatility hedge funds. That allows us to move large amounts of vega," says Pantone.
And while central clearing of OTC derivatives has not yet been mandated by Hong Kong regulators, the bank has been in discussions with second- and third-tier banks, asset managers and other institutional investors on the requirements when client clearing goes live in 2014.