Retail clients are getting familiar with structured products, Shenzhen Ping An Bank

The introduction of new regulatory requirement earlier this year as part of broader efforts by China's financial regulators to contain the risk in the financial system, has not affected negatively the domestic structured products market, albeit any new products issued by financial institutions must comply with the new regulations during the transition period. SRP spoke to Angel Xin (pictured), head of derivatives at Shenzhen Ping An Bank, about the Chinese structured market and how the new changes coming along with the new asset management regulation could trigger increased activity.

It is expected that the Chinese market will continue growing during the transition period - which will be completed by the end of 2020, as the new regulation - Guidance opinions concerning standardisation of Asset Management Operations by Financial Institutions, will not apply to outstanding products to maintain required liquidity and market stability.

"Structured products are growing very fast in the first half of 2018 year and the volume is more than 9000 billion RMB (US$1.3bn)," said Xin, adding that most products in China are wrapped as structured deposits. "[Investors] are still in love with the principle guaranteed feature" of deposits. Retail clients are getting familiar with structured products. More and more people start to know the name of structured products."

Simple products are prominent, although the bank is now looking at introducing different types of structures to the Chinese market including products linked to "overseas opportunities", according to Xin.

"Although the volume gets big, the percentage of options [embedded] in the products is still small," said Xin, pointing at some of the challenges the market is facing. "This is because most products have guaranteed options, which limits the option premium."

However, the new regulation will provide "a clearer definition of structured products", and allow to the market only those who have a derivatives license to distribute structured products, according to Xin.

"[It] is good for the industry to be better regulated," said Xin. "These new policies define the products well and actually the regulators are trying to avoid systematic crisis by deleveraging the capital [market] and by restricting risky asset classes."

This in turn will create a good healthy economic environment for innovation, according to Xin. "In order to follow the new frame, we [will] restrict the scale of products which do not follow the frame. Meanwhile, we are developing new structured products within the frame to replace the old products. We will also create new products and initiate new ideas to lead the industry."

SRP data shows that Shenzen Ping An Bank is the most active distributor of structured products in China with 448 products worth approximately US$1bn, including non-retail, leverage and flow, marketed year to date. Of the 58 tranche-based products sold this year most are linked to the Libor index (37 products), followed by the USD 3M Libor (11), CSI 300 index (nine), and CSI Hong Kong Dividend index (one).

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