Earlier on Thursday, a court in Singapore had blocked the sale of Eldorado bonds to local investors, saying the firm should clarify information on its offering prospectus.
Banks in Hong Kong are feeling the pressure mount as the Securities and Futures Commission’s (SFC) April implementation deadline for the new suitability requirements edges closer, according to an industry professional.
In a bid to strengthen investor protection, the Hong Kong watchdog revised its due diligence regulations last year.
According to the new rules, suitability checks are required for every complex product transaction regardless of whether or not the bank offered advice. Currently, such checks are only necessary following bank recommendations.
“One of the areas in which the banks are struggling is to increase the due diligence coverage for their investment universe in order to reduce direct impact on their transaction-based revenues,” Anu Meha, manager at consulting firm Synpulse, told Asian Private Banker.
Pressures on the product front include banks having to conduct due diligence for every investment product, categorising each as complex or non-complex before ensuring the subsequent suitability processes are in place. To facilitate the undertaking, the SFC published a non-exhaustive list of complex and non-complex online products in its consultation conclusion in March last year but has left the final decision regarding the distinction in the hands of the banks.
Although the consultation for the proposed guidelines on online distribution and advisory platforms was concluded in May 2018, the consultation conclusion on offline requirements applicable to complex products was published in October, both with an April deadline to ensure a level playing field for online and offline product distribution.
“The main challenge of complying with the new suitability requirements on the sale of complex products is thatbanks only have six months to adopt these changes, the time period being very short considering the scope of changes required,” Anu Meha said.
Further, the revised regulations make banking across multiple jurisdictions more complicated for international private banking clients.
“Banks that allow their clients to book assets across Hong Kong and Singapore booking centres are forced to implement consistent regulatory practices across both jurisdictions. Naturally, this leads to the stricter of the Hong Kong or Singapore regulations being implemented across both booking centres for managing these cross-booked assets,” she explained.
Despite the revisions, Anu Meha said private clients’ preference for Hong Kong as a banking destination won’t necessarily change.
“One of the biggest markets of Hong Kong is China as location and cultural proximity is important,” she said.
“Hong Kong still remains a key location for investors from China, however, there is strong competition from Singapore as it does provide clients geographical diversification.”
As in Hong Kong, Singapore’s regulators have also prioritised client protection. Implemented earlier this month,the Monetary Authority of Singapore’s (MAS) revised accredited investor regime includes an additional layer of consent for investors who meet the accredited investor threshold requirements but want as much protection as their retail counterparts.
SHANGHAI, Jan 28 (Reuters) - Local government Chinese bonds issued last Friday by the northern Hebei province were 52.74 times oversubscribed, underscoring huge demand for high-quality debt instruments as Beijing relaxes monetary conditions, the Shanghai Securities News reported.
The 10-year special-purpose bonds issued by Hebei were sold at a coupon rate of 3.51 percent, 40 basis points higher than China’s central government bonds with the same maturity - the minimum spread regulators required to facilitate local government bond sales, the article said.
Local government bonds worth 288.4 billion yuan will be sold this week, following 129.56 billion yuan worth of issuance last week, representing the most intensive period of local government bond offerings in history, according to the newspaper.
China is allowing local governments to issue debt earlier than normal this year, amid a push by Beijing to revive flagging economic growth.
Investors are also chasing other types of high-quality bonds, such as those issued by state-owned enterprises, local government financing vehicles, and private firms with high credit ratings, though low-rated bonds are still being avoided, it said.
A separate article in the China Securities Journal reported that convertible bonds issued recently by Ping An Bank were 1,400 times oversubscribed, with 10.75 trillion yuan worth of institutional money bidding for about 8 billion yuan of the securities on sale.
However, market interest in the first-ever issue of perpetual bonds by a Chinese bank was relatively muted. Bank of China on Friday issued 40 billion worth of perpetual bonds at a 4.5 percent yield. The central bank said the issue had a bid-to-cover ratio of “more than 2.”
BlackRock Inc., the world’s largest asset manager, inadvertently posted confidential information about thousands of financial adviser clients on its website.
The data appeared in three spreadsheets, linked on one of the New York-based company’s web pages dedicated to its iShares exchange-traded funds. The documents included names and email addresses of financial advisers who buy BlackRock’s ETFs on behalf of customers. They also appeared to show the assets under management each adviser had in the firm’s iShares ETFs.
The links were dated Dec. 5, 2018, but it’s unclear how long they were public. The documents were seen by Bloomberg and removed Friday. BlackRock, which oversees assets of almost $6 trillion, is the world’s largest issuer of ETFs.
One of the spreadsheets appears to list more than 12,000 entries of advisers and their sales representatives at BlackRock. On another, the advisers were categorized in a variety of ways such as “dabblers” or “power users.” A column noted their “Club Level” including the “Patriots Club” or “Directors Club.”
“We are conducting a full review of the matter,” spokesman Brian Beades said in a statement Friday. “The inadvertent and temporary posting of the information relates to two distribution partners serving independent advisers and does not include any of their underlying client information.”
Securing data is known to keep Wall Street leaders awake at night. But most often, senior executives cite a fear of hackers, which has prompted some of the nation’s biggest banks to pour upwards of $1 billion a year into cybersecurity. It’s one area where financial firms set aside bitter rivalries, sharing tips and collaborating on projects to ensure the public remains confident in the industry -- and that it never suffers a catastrophic loss.
But even data breaches that don’t expose client assets risk reputational harm.
In 2014, JPMorgan Chase & Co. suffered one of the industry’s largest losses of information, estimating at the time that hackers had accessed contact information on more than 80 million clients. Chief Executive Officer Jamie Dimon vowed to increase the bank’s security budget and embarked on a hiring spree to build out those operations for what he called “a permanent battle.” He has repeatedly updated investors on those efforts in annual letters.
Firms can’t avoid breaches entirely, but they can react to them in a way that rebuilds trust, said John Reed Stark, who focused on internet crimes while working in the Securities and Exchange Commission’s enforcement division and now runs a cybersecurity consulting business.
“Data security incidents are inevitable,” he said after the incident at BlackRock. “The most important thing in this kind of situation is about the response from the firm, and whether they’re communicating accurately about what happened.”
Volumes of electronic trading in fixed income have jumped since European Union rules introduced a year ago made it more cumbersome to execute over-the-counter (OTC) business, in a bid to make deals more transparent, a report said.
Total average daily volumes of EU government bonds traded electronically in the first three quarters of last year rose by 36 percent to $57 billion, the report by Greenwich Associates based on a survey of fixed income investors said.
Credit volumes on electronic platforms jumped 39 percent to $4 billion over the same period, it found.
Market participants are using electronic platforms more because the European Union’s Markets in Financial Instruments Directive II (MiFID II), introduced in January 2018, made it more onerous to carry out OTC trades, it said.
Electronic venues make time stamping and data reporting easier compared with OTC, the report said.
Electronic trading in interest rate swaps by European buy-side fixed income traders jumped by 36 percent in 2018, compared with 20-percent growth a year earlier, the report showed.
MiFID II, the second iteration of sweeping rules aimed at increasing transparency in financial markets, was broadened beyond equities to cover other asset classes, including fixed income, derivatives and exchange-traded funds (ETFs).
Spot foreign exchange was excluded, but forex derivatives are covered by the rules, which require pre- and post-trade data to be reported. For instance, the prevailing price in the market must be checked and recorded prior to executing a deal.
Greenwich said traders expected electronic trading to expand as more dealers were connected and adjusted their workflow.
Algorithmic trading, common in equity and foreign exchange markets, could take off in fixed income, Greenwich said.
MiFID II and more robust requirements for so-called best execution, including comparing prices across brokers, were boosting the use of transaction cost analysis (TCA), which helps traders measure performance against execution benchmarks, it said.
Of the European equity traders surveyed, 95 percent said they used TCA, up from 74 percent in 2017.
Usage is increasing in fixed income, where it accounts for 50 percent, and foreign exchange, where it accounts for 63 percent. Those are still below levels in equity markets.
MarketAxess, an electronic marketplace bidding to modernise the way bonds are traded, is building its presence in the staid world of European private banking in its latest push to vanquish the telephone.
Electronic trading, long the standard in many financial markets, including virtually all equities trading, is making a steady advance into one of the final redoubts of buying and selling via telephone: the market for corporate bonds. But voice-broking, as it is known, remains common practice for bonds at many banks.
MarketAxess is now targeting private banks in Europe and Asia in a bid to strengthen its hand in those regions.
The push follows MarketAxess’s hire of Erik Tham from UBS in November 2018 as its head of private banking for Belgium, the Netherlands, Luxembourg and Switzerland.
Key to the initiative is developing software designed especially for private banks to buy and sell bonds. MarketAxess already has around 1,500 companies transacting on its platform globally.
Tham worked at UBS Wealth Management for more than 12 years until his departure last year. The former Accenture consultant is based at MarketAxess’s office in Amsterdam, which was opened as part of the bond venue’s Brexit planning.
Christophe Roupie, head of Europe and Asia at MarketAxess, said: “MarketAxess’s aim is always to improve liquidity access and trading efficiency for our clients, regardless of their sector, product needs or what side of the trade they are on.
“Our private banking clients are no different. In bringing on Erik Tham from UBS, and tapping into his knowledge of their particular needs and liquidity challenges, we have the opportunity to enhance and evolve the electronic trading model for private banks across both Europe and Asia.”
Greenwich Associates, the Connecticut-based consultancy, said in a report in January that electronic trading is gaining ground in bond markets. By volume, electronic trading accounted for 26% of total US corporate bond trading volume in the third quarter of 2018, up from 19% in the first quarter.
Greenwich predicted that consolidation is on the way for electronic corporate bond trading platforms.
According to a September 2018 report by McKinsey, the consultancy, private banks in Western Europe recorded record high profits of €15bn in 2017. The report said that private banks have benefited since 2013 from positive returns in the financial markets.
MarketAxess, which was founded in 2000 by chief executive Rick McVey, recorded trading volumes of $131.2bn in December. Its third-quarter revenues rose 6.1% year on year, to $101.4m. The company is set to publish fourth-quarter results on January 30.
A pioneer of electronic stock trading is moving to the bond market.
Chris Concannon is joining bond-trading venue MarketAxess Holdings Inc. as president and chief operating officer, the company said. He comes from Cboe Global Markets Inc., CBOE which operates stock, options and futures exchanges, where he held the same positions.
A spokeswoman for Cboe declined to comment.
An advocate of electronic trading since the 1990s, Mr. Concannon, 51, is making the move in the relatively early days of the corporate bond market’s transition to automation.
While stock trading has become nearly automatic, taking place primarily in central online markets, corporate-bond trading remains a largely manual process. Bond traders still negotiate deals over the phone or via electronic messages.
Yet the market is changing quickly, driven by regulation, upstart platforms and new technology. A recent survey by Greenwich Associates, an industry consulting firm, found that 26% of corporate bond volume was traded electronically in the third quarter of 2018, up from 19% in the first quarter.
“I see the corporate-bond market evolving, and it’s following a pattern I’ve seen before in my career,” Mr. Concannon said in an interview.
A lawyer by training, Mr. Concannon joined Cboe in 2017 after it acquired electronic stock exchange firm Bats Global Markets Inc., where he was chief executive. Mr. Concannon also served as president and COO of Virtu Financial Inc., a high-frequency market-making firm that trades stocks, currencies and other assets.
Mr. Concannon said he expects the move to electronic trading to accelerate as rising interest rates continue to roil the markets. “We’re approaching the end of a 10-year bull market,” he said. “There will be active trading in fixed income while the volatility of the transition occurs.”
About 85% of electronic corporate-bond trading by institutions in the third quarter was on MarketAxess, Greenwich’s survey found.
THE Monetary Authority of Singapore (MAS) will double the individual limit for holding Singapore Savings Bonds (SSB) and allow investors to buy the instruments using their Supplementary Retirement Scheme (SRS) funds, the financial sector agency announced on Monday.
The maximum amount of SSB that an individual can hold will be raised to S$200,000 from the current S$100,000, MAS said. Both changes will take effect from Feb 1, 2019.
The SSB programme has garnered about S$3.7 billion of investments from close to 100,000 individual investors since its launch in October 2015, MAS said. During this time, the authority has received requests from the public to allow the purchases of the bonds using SRS funds, which are voluntary retirement savings contributed by Singapore workers above the national CPF scheme.
"Taking into account public feedback, MAS has worked with the banks to enable SRS funds to be invested in SSB. This will expand the range of products available to SRS members and help them save and plan for retirement," MAS said in a press statement.
To apply for SSB using SRS funds, investors may apply through the internet banking portals of their respective SRS operators, which are the local banks – DBS, POSB, OCBC Bank and United Overseas Bank. As with cash applications, the minimum application amount is S$500, and a S$2 transaction fee deducted from the SRS account for each application.
The new increased individual limit on SSB holdings will apply to SSB purchased with cash and with SRS funds.
MAS will also launch a "My Savings Bonds" portal in March for investors to view their consolidated SSB holdings via the SSB website.
[HONG KONG] Hong Kong has proposed widening tax breaks to include hedge and private equity funds that are domiciled in the city in a move market watchers say should encourage more of them to move there.
Locally domiciled vehicles that can only be sold to qualified institutions and wealthy individuals - such as hedge and private equity funds - will be eligible for an exemption from a 16.5 per cent profits tax for the first time, according to a council brief posted on the website of the city's legislature. Lawmakers are scheduled to have a first reading of the bill on Wednesday, and the government has recommended the change take effect on April 1.
Hong Kong has long been locked in a battle with Asian peers such as Singapore and Shanghai for the title of the region's premier financial center. The proposed change came after many years of lobbying by Hong Kong's local asset management industry, and after the European Union labeled the city's current profits tax regime for funds as "harmful."
This would "put us on a level playing field with Singapore," Paul Ho, Ernst & Young's financial services Hong Kong tax market leader, said in a telephone interview. It may also "attract more overseas asset managers to consider setting up their platforms here in Hong Kong," he said.
Hong Kong's asset management and fund advisory industry totaled HK$17.5 trillion (S$3.07 trillion) at the end of 2017, up 23 per cent from a year earlier.
Under the current rules, locally and overseas domiciled funds that are authorized for sale to retail, or individual, investors in Hong Kong are eligible for a profits-tax exemption, as are funds that have been established in offshore centers such as the Cayman Islands and that are only available for sale to institutional investors and wealthy individuals.
Even when they're ultimately run by managers in Hong Kong, most hedge and private-equity funds have their legal home in an offshore tax haven for economic reasons. There are conditions that locally established funds will have to meet to qualify for the proposed tax exemption, such as managers having a license from the local securities regulator, or a minimum number of investors.
Sovereign wealth funds also could be covered by the proposed change, Ernst & Young's Ho said. The loosened regulations will also likely be a boon for tech startups in the city trying to attract capital from money managers, he added.
Currently, offshore private funds cannot claim a profits-tax exemption for their investments in privately held, Hong Kong-domiciled companies, such as technology firms.