Following the release of the Hong Kong Financial Services Development Council's (FSDC) annual report which calls for the introduction of non-leveraged listed structured products as part of the expansion of the country's financial market to enhance its competitiveness and ensuring its future development and growth as a global financial center, Societe Generale listed a range daily leverage certificates (DLCs) on the Singapore Exchange (SGX). SRP spoke to Keith Chan (pictured), head of cross asset listed distribution, global markets, Asia Pacific, about the need to diversify the product mix across Asian exchanges.

"The key takeaway from the FSDC paper is the need to address the lack of diversity in terms of products," says Chan. "Right now, it is really just leveraged trading products. Investment type products are less actively traded and investors generally buy them for longer-term holding periods."

According to Chan, these products are the missing category on Asian exchanges and it will be interesting to see them arrive in Asia. "The report highlights that the industry should start considering diversifying the range of listed products," says Chan pointing that the report mentions products such as bonus and discount certificates.

Listed products should not be too complex, according to Chan. "The key to introducing new types of listed products to the market is to keep it simple, especially when we talk about those listed on the exchange, because many investors including retail investors can generally access them via a stock trading account," he says. "It needs to be simple and it needs to be standardised."

The major message of the report is not only about the new products that need to be introduced to ensure the stability of the market, according to Chan. "I think it is more important that we have an environment that encourages innovation," he says. "The approval process of new products as well as the high costs associated with listing new products is a barrier that discourages issuers from getting involved in [developing] new products. We need to create an environment that encourages issuers to try new products and one which enables them to do so in a timely and cost-efficient manner."

The past ten years have been turbulent for the world's financial markets following the global financial crisis of 2007-2008. This has made investors much more cautious regarding the products they choose to invest in, according to Chan.

The FSDC paper describes warrants and CBBCs as the most significant products in the Hong Kong Stock Exchange (HKEx). "This is not a surprise, considering the easy accessibility to these products," says Chan, adding that this segment of the market started developing in the early 2000s and has already attracted significant numbers of investors, "which additionally contributed to its massive success".

"At the moment, the market is quite stable and, for the last 10 years, volumes have [retained] between 22% and 28.6% of the total volume of the exchange," Chan says. "Warrants and CBBCs tend to attract more volumes when the market is more volatile, meaning that when there is more movement in the underlying security, [investors] will be more inclined to trade actively."

Regarding the recent launch of DLCs in Singapore, Chan said that the popularity of these products in Europe was the main reason for the bank to introduce them in Singapore.

"We are very successful in Europe and keen to leverage this expertise to bring more products to Asia," says Chan, adding that Societe Generale is willing to bring DLCs to other exchanges in the region interested in them, although the current focus is on the Singapore launch and "on educating investors about the new product offering".

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