Across the Asia-Pacific structured products markets as a whole, BNP Paribas has had an impressive year, largely powered by its innovative cross-asset structuring capabilities in idiosyncratic jurisdictions. In Hong Kong, though, it decided to go back to basics.
Highly standardised flow products such as warrants continue to dominate in the special administrative region. But the market for listed products such as callable bull/bear contracts (CBBCs) has not evolved much in recent years and, for genuine retail investors, it is not the most user friendly, the bank felt. In a bid to target a newer generation of investors, BNP completely reappraised its approach – starting with a renewed focus on investor education.
The bank created a new website aimed primarily at educating investors, but which also disseminates live prices under licence from Hong Kong Exchange (HKEx) in a bid to liberalise access to information and draw in new money.
"A lot of issuers focus on churning out products, and providing investors with commentary. No one really focuses on education any more," says Martin Wong, head of exchange-traded solutions for Apac at BNP Paribas. "We understand that the market is very mature; but we wanted to concentrate on ways to bring new investors in. So we looked at the most popular products, like CBBCs, and found that, if you're a genuine retail investor and you want to get a real-time quote on the future itself – which is the where the price is set – it is actually pretty difficult unless you have access to a terminal. So, the first thing we did was go to HKEx via our data vendor to obtain a licence to provide real-time spot and futures quotes via our website."
Retail brokers in Hong Kong report strong interest on the back of the push. But in a year when equities have slumped, the bank has looked to diversify beyond pure equity-linked underlyings – a trend that matches its bid to innovate and expand the traditional profile of the listed warrants market. In talking to retail brokers, it noticed a trend: many wanted to offer foreign exchange products to their investors but were frustrated at the lack of opportunities to do so within the warrant format.
We've built our reputation on being there when people need us, when they want to offload or recycle their risk, and that's stood us in good stead
Martin Wong, BNP Paribas
"If you want to trade retail forex, one way is to go to an online margin account. But that level of risk isn't for everyone. Using warrants, there's a limited downside; you only lose at most what you pay in. So it's a much better vehicle for going short than getting a margin account, for instance. No one else is doing this right now. That's down to our multi-asset focus; most [dealers] treat this as a pure-play equities business," says Wong. "Foreign exchange is not seen as a mainstream underlying here, but given the momentum we've seen in a lot of currency pairings this year, especially dollar crosses, demand has grown."
In the first quarter of this year, the bank launched warrants linked to four currency pairs: the dollar against the yen, the euro, the Australian dollar and pounds sterling. The latter product launched in May, a month before the UK's Brexit vote - and did very well indeed, says Wong.
In line with its strategy across the region, the bank has stepped in where other dealers are retreating, taking over Standard Chartered's warrants market-making seat on HKEx in the first quarter of this year, for instance.
"That was quite a smooth process thanks to our experience with Citibank's positions before," he says. "We've built our reputation on being there when people need us, when they want to offload or recycle their risk, and that's stood us in good stead."
Clients back up this assertion: "We know BNP will always do unwinds for us on Hong Kong underlyings. They are the most reliable for that, so we give them a chunk of flow business in return," says a senior private banker.
In non-flow, client feedback is more impressive still: "For basket trades on Hong Kong underlyings, they are now consistently the best. Other players who were more aggressive last year have dropped off, while BNP have really upped their game," says a senior executive at one large private bank in Singapore.
"Their sales coverage is excellent," reports a Hong Kong-based private banker. "For non-flow equities, they're very proactive in bringing us new ideas."
A Hong Kong-based wealth manager agrees: "They're very good on H-shares. They give us lots of strong trade ideas around dividend strategies and correlations with other asset classes."
The week on Risk.net, December 9–15 2017Receive this by email