Hong Kong and Singapore are looking to increase their share of the international US$540 trillion global derivatives business. As Europe and the UK make stricter banking rules, these countries are seeking to take advantage of the situation. Brexit, Britain’s decision to quit the European Union, is also causing much uncertainty in the European banking sector.
The discussion is on:
Regulators from Hong Kong and Singapore, two biggest Asian financial centres, have been discussing the matter with the Asia Securities Industry and Financial Markets Association (ASIFMA).
The ASIFMA is the representative of all global money lenders in the Asian continent. The subject of their talk is regarding the regulatory changes that would be required if Hong Kong and Singapore want to get more banks to have their derivatives business in these places. The derivatives may include interest rate swaps or foreign exchange derivatives that would enable investors to hedge their exposure to currency rates and interest rate fluctuations.
The Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority (HKMA) are trying hard to make this dream come true. If they do succeed, they will attract billions of dollars in the banking business to Asia, leading to job opportunities and economic growth.
Why the shift?
Global banks have handled a large number of Asian trades which has led them to profit on a large scale by aggregating their capital and infrastructure. London was an ideal hub for carrying out such businesses, but Brexit has prompted many of these banks to shift their operations. As a result, there have been internal discussions about transferring Asia’s trades to Asian financial centres. According to sources, the banks in Asia which are looking forward to booking more trades include HSBC, Standard Chartered, UBS and Credit Suisse.
All of them are big, flourishing banks which provide integrated mobile services.
Right now, it is costly for global banks to book derivatives trades in Hong Kong and Singapore. The HKMA and MAS have not permitted these banks to use their internal risk-management systems. However, regulators are becoming more accepting of these internal capital calculation models with changes in the financial scene.
Hong Kong and Singapore are already regarded as major global financial centres but managing to get a strong foothold in the global derivatives market would help solidify their reputation and allow them to explore more banking initiatives other than asset management. They would be able to provide more benefits like meeting the rising demand for consultancy and IT services in spite of the popularity of automation.
Successful completion of this venture would also mean increased financial risk, but that might be worth it. The MAS and HKMA are not collaborating on this project but are leading separate initiatives. They have started introducing policies which would make derivatives in the countries easier and cheaper for global banks.
If the transfer is implemented, Asians stand to benefit in matters of personal finance along with the state banks.