Securities house of the year: Haitong International

Asia Risk Awards 2020

Lin Yong, CEO, Haitong

The year 2020 has rattled many – but Haitong International (HTI) has been able to weather the storm thanks to its continued efforts to improve risk management, develop online trading and increase communications with its wealth management and corporate finance clients.

Based in Hong Kong, HTI’s ability to service its core Chinese customer base has been severely challenged by social unrest and, more recently, the Covid-19 pandemic. But despite this, growth has remained strong, with trading volumes on over-the-counter financial products increasing by more than 25% in 2019. In particular, the number of professional investors surpassed 2,500, up 20%, while the number of clients on the firm’s app trading platform jumped by 240%.

“With the social unrest followed by the pandemic, our trading businesses for our institutional clients have been affected to the extent that face-to-face meetings were cancelled as mainland Chinese were reluctant to visit Hong Kong. A lot of our corporate asset activities have moved online. This has been welcome and appreciated by our investors over the last six months,” says Kenny Chong, managing director and chief trader at the firm.

The securities house’s trading revenue for institutional clients increased by about 40% in the first half of this year. That was not only because the market rebounded, but also because many of the firm’s transformation projects started to bear fruit.

The wealth management business, for example, has expanded into more products including brokering and dealing in securities, futures, OTC products, securities margin financing and investment advisory services. The firm has also served more clients – both high-net-worth retail clients as well as professional investors.

“Our business has transformed from a traditional retail brokerage business into a full-fledged wealth management business,” says Kevin Leung, director of wealth management investment strategy. “We’ve been diversifying our products and increasing the mix of our investors, as well as putting more focus on our online trading platform, which has become useful for people working remotely under the Covid-19 situation.”

HTI’s strength also applies to its young and ambitious business in Hong Kong’s warrants and callable bull and bear contracts (CBBCs). This line of business only started in 2018, but already the securities house has made its name in a listed structured products market that has long been dominated by large global investment banks.

Between May 2019 and April 2020, HTI’s CBBCs total turnover stood at HK$292.7 billion ($37.8 billion), a year-on-year increase of 68%. The product’s money inflow and notional sales both grew more than 60%, to HK$321.1 million and HK$24.2 billion respectively. This represents a total 14.62% of the entire CBBC market.

HTI’s rapid growth in Hong Kong’s listed products market owes much to its innovative approach to utilise the big data technology and diversified communication channels.

The firm has capitalised its data analysis that helps to locate market sentiment and provide the most popular listed structured products for investors’ hedging needs and profits, says Chong.

Over the last year, HTI found that the rise of benchmark indexes in Hong Kong was largely led by the price increase of several blue-chip stocks. Based on its detailed transaction analysis, the firm increased its product issuance accordingly, where a quarter of its warrants and CBBC products were created from the top-five underlying stocks.

“We drill down [into] some information, such as investor stickiness, so that we are able to pinpoint and issue some products that are the best,” says Leung.

In addition to using technology to understand client demands, the firm was able to secure customers’ loyalty by adopting interactive communication channels such as social media, live videos for market updates, product education seminars, and so on to effectively attract investors’ attention. The online outreach activities comprise almost 70% of all HTI’s information distribution channels.

‘Risk management 3.0’

With more and more business activities happening online, financial institutions need to pay closer attention to risk management. HTI is well-prepared given its senior management has continued to push for the most stringent and advanced risk management strategy.

Last year, the securities house established two new risk management sub-committees – the product management committee and the impairment committee – to better capture all risk types at a practical level. The move was in line with international standards; some large global banks also have this kind of set-up.

In the middle of this year, HTI enhanced its internal model risk governance voluntarily to make sure there are no mishaps with regard to its wide range of models used across the organisation and the employees using the models.

HTI is proud of its quant expertise. For five years, the securities house has established a quantification risk-monitoring team to build default risk modelling, risk monitoring interface, sentiment analysis and stock classification system in order to help its customers.

“The quantification is important to provide a technical perspective for our decision-making on the projects and trading behaviours,” says Sun Peng Fei, executive director of risk management. “From the governance perspective and the working level perspective, HTI is in the leading position when it comes to risk management.”

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