ABN AMRO鈥檚 Valerie Rossi, executive director of securities financing, global markets Asia, and Jagdish Hirani, managing director and head of global markets Asia, tell SLT about the boost that Chinese A share ETFs have given to Hong Kong鈥檚 market
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Hong Kong seemed to be a bright spot for global securities financing in late 2012鈥攈ow are the markets faring currently?
Valerie Rossi: This year has again seen a change for the securities financing business. The first half of the year has proved challenging. A lack of specials and a reduction of volumes seems to have been the trend for the first half of the year. However, there is still strong growth in the capital markets for dollar bond issuance with Asia, excluding Australia and Japan, hitting record highs. We expect this to positively impact the repo activity in the region.
We have also seen a rise in borrowing demand as a result of several rights issues and new exchange-traded funds (ETFs). Chinese A share ETFs listed on Hong Kong markets issued either via the QFII (qualified foreign institutional investors) or RQFII (RMB) programmes have continued to be popular. The deregulation of the RQFII programme announced by the China 色花堂Regulatory Commission (CSRC) to include Hong Kong subsidiaries of Chinese mainland commercial banks and insurance companies, as well as financial institutions registered in Hong Kong, is opening the door for international firms. The RQFII programme is also going to expand to Taiwan, creating further opportunities including the potential creation of RQFII ETFs.
While we haven鈥檛 seen the highs of 2012 in terms of volumes and fees, we believe that there is still good demand, commitment and a long-term interest from our clients in the local markets.
Is the amount of specials increasing in the market?
Rossi: We have seen more specials in some specific markets, for example Taiwan, but a decrease in other markets such as Hong Kong. On balance, there has probably been a decrease in the amount of specials regionally but still plenty of premium returns to be enjoyed.
Could you describe ABN AMRO鈥檚 various offerings around securities lending in Hong Kong?
Jagdish Hirani: We have a unique approach to the business. Our coverage includes equity, bond and collateral financing. We have the ability to offer a wide array of products within our mandate satisfying demand via repo, securities lending or swaps. ABN AMRO is a niche player within the securities financing world. We look to understand our clients鈥� needs and use our expertise to offer customised solutions to both internal and external clients. We also work closely with other business lines within the ABN AMRO group to provide broader product solutions through the same platform.
What are some of the collateral solutions used by the firm?
Hirani: Collateral management is an intrinsic part of the entire securities financing value chain. Our collateral management process is centralised (in Amsterdam) and this allows us to optimise the collateral flows and solutions we choose either bilaterally or through a triparty arrangement. At the ABN AMRO securities financing desk, we work closely with our asset/liability management/treasury department to provide solutions to optimise the bank鈥檚 assets and provision of liquidity to our clients. The structure of our securities financing product encompassing equity, bond and collateral financing under one mandate allows us to achieve these goals more efficiently than if they were segregated.
How did the Hong Kong Stock Exchange鈥檚 tightening of the rules that regulate the short selling of designated securities affect your firm, if at all?
Rossi We have not seen a specific adverse affect on our client activity following the change in eligibility criteria for designated securities for short selling by the Hong Kong Stock Exchange in 2012. In the meantime, additional securities have also become eligible based on their respective market capitalisation and turnover.
How are Hong Kong desks developing their in-house technology?
Hirani: Our securities financing desk in Hong Kong is a part of the international activities of ABN AMRO. We take a global technology approach to this business with our core infrastructure being hosted centrally from Amsterdam to optimise the synergies of scale. Within this framework, we customise where necessary to also cater for any local market nuances.
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