Hong Kong is the supercharged engine powering HSBC's extraordinary growth in Asia. In its half-year report, the bank singled out the local operation as the driver behind a 10% leap in year-on-year revenues. Each desk played a role in this success story - not least the equity derivatives and structured products teams.
In 2014 HSBC cemented its position as the 'go-to' house for Hang Seng Index (HSI) and HSCEI vanilla options, garnering close to 10% of daily single-stock options turnover. It also topped the list for issuance of equity-linked investments, including the single-stock warrants and callable bull/bear contracts (CBBCs) that are all the rage among Hong Kong's retail investors. Local distributors are quick to praise the bank's quality of service, frequently citing it as the first port of call among issuers of equity-linked products in a competitive market.
"The quality of service provided by HSBC has been excellent. It is fast and efficient, and provides good end-to-end support to us as a distributor of its products," says Henry Lau, head of investment service for the wealth management division at China Citic Bank International in Hong Kong, which trades equity-linked notes and other products with the bank.
The equity derivatives desk attributes this success to the innovative organisation of the trading team. "Our businesses are linked, especially on the trading side: everybody sits together and reports to the same boss," says Nicola Pantone, Hong Kong-based head of institutional equity derivatives sales for Asia at HSBC. "We have a unique single-stock team that looks at warrants, structured products and hedge fund flows at the same time. That clearly allows us to be a bit smarter, take our time and find better ways of reducing risk. If you couple that with a dynamic, client-facing business on the other side that talks to clients constantly and knows what they're interested in and can feed that back to the trading teams, it becomes a powerful offering."
Business smarts are one side of this success story. Scale is another. HSBC's global footprint and range of operations allows it to tap into deep wells of liquidity across the franchise. This came in handy during the roller-coaster ride experienced by Chinese equity markets in July. On the eighth of that month, the HSCEI fell more than 7%, and the HSI by nearly 10%. Throughout the turbulence, HSBC kept the cogs of its equity flow operation turning.
The quality of service provided by HSBC has been excellent. It is fast and efficient, and provides good end-to-end support to us as a distributor of its products
"It is without doubt one of the best pricing providers on the Street," says a senior executive at one of the region's largest private banks. "It kept offering pricing on all names in July when the markets were going crazy. It never pulled its liquidity and its after-sales service is also good. Trade unwinds are never an issue."
HSBC also successfully navigated the other big market event of the past 18 months: the launch of the Hong Kong/Shanghai Stock Connect. Clients readily acknowledge that the bank was the first to bring tactical opportunities to trade the basis between Shanghai-listed A-shares and Hong Kong-listed H-shares in the run-up to the programme's unveiling in November 2014.
Pantone says this was the result of joined-up thinking about how the bank should approach the challenges and opportunities introduced by the scheme: "In the run-up to the launch of Stock Connect, not everybody was able to fully understand the full interlinkages between the futures, options, exchange-traded funds and cash markets and the tactical opportunities that would result. From the time it was announced in April until the launch in November, and all the activity that followed, we believe we were acting as thought leaders in that area. You can see that in the substantial market share we have."
The bank is also a vocal cheerleader of the Contineo initiative, an industry-supported multi-issuer platform for equity-linked structured products. Contineo went live on January 20 with the industry's first open messaging network, designed to act as a high-speed conduit between issuers and their private banking and wealth management distributors. HSBC was one of the seven founding backers.
Pantone says: "Automation will allow the Asia structured product industry to grow and evolve and we expect Contineo to play a big role. Contineo has an experienced management team, best-in-class technology and the backing of the leading derivatives providers in the region. We are excited to be part of it."
The week on Risk.net, July 7-13, 2018Receive this by email