The Hong Kong Exchange (HKEx) has announced plans to launch a similar mutual access for commodities futures following the introduction of the Hong Kong-Shanghai Mutual Stock Access.
HKEx announced last week that mutual access for commodities futures between the mainland and Hong Kong is expected to fully implemented in the course of this year, with four new futures contracts to be introduced at the first phase of a new commodity mutual access platform.
A spokesperson at HKEx told SRP that with the accelerated pace of cross-border trading deregulation and growing demand for asset class diversification, the market of listed derivatives will grow in size and structured products are set to benefit from the added market depth and price transparency.
“As the scope of investable assets become increasingly listed and the trading volume becomes larger, a wider range of derivative products is expected to emerge to meet growing investment and hedging needs, which include listed structured products,” said the spokesperson.
New underlyings
The HKEx plans to launch commodities futures mutual access will broaden the channel of communication for investors from both China and Hong Kong, and market players presume such a move may bring new underlyings to the structured products market.
Alfred Mak, head of investment products and advisory at Bank of East Asia, told SRP that the mutual access may lead to introduction of A-share-linked products. “[Both equity and commodity mutual access] will provide more channels for investors to get to know the mainland market with increased transparency and lower transaction costs, and may encourage providers to launch new underlyings of single A-shares.”
Andrew Fung, head of global banking and markets at Hang Seng Bank, said that both investors from mainland China and Hong Kong will benefit from cost-efficient access to cross-border securities and derivative contracts, although it will take some time for structured products to benefit from the mutual access set-up.
“There are a number of technical and regulatory issues yet to be clarified before structured products can be developed, for example, capital account opening and withholding tax for A-shares,” said Fung.
The recently approved Shanghai-Hong Kong Stock Connect is a scheme that allows qualified investors from both mainland China and Hong Kong to directly trade shares listed on the Shanghai Stock Exchange and the HKEx. The Hong Kong exchange said its commodities futures platform will be built following the same model.