Stanchart cuts equity derivatives as the ‘miracle’ comes to an end

Standard Chartered Bank announced, on October 26, that it will exit equity derivatives and convertible bonds, following its strategic exit of institutional cash equities, equity research and capital markets in January. Simon Yung (pictured), head of equity structured products and warrants sales, left the bank earlier today, with around 30-40 employees also affected.

While a spokesperson refused to comment on the dismantling of the team, Yung ventured on to social media to say how thankful he was to have had the opportunity and how proud he was to have the privilege to lead the team that "built the miracle".

Securities trading will not be affected and the bank will continue to bear its responsibilities for market-making and providing liquidity for listed warrants/callable bull bear certificates (CBBCs) and equity-linked investments until these instruments expire, said the bank in a statement. “The warrants and CBBCs in Hong Kong are still profitable for the bank this year; the cut-out is more of a global than a regional decision,” said a senior banker close to the issue. “I suspect that, as the bank has closed down its cash business and equity research, the management decided it might as well exit equity derivatives as the supporting business has died out.”

Stanchart was the fourth biggest player in warrants transactions in September and took more than 12.3% of the market share, according to the Hong Kong Exchange. “The warrants market in Hong Kong is white-hot, with the top three players accounting for over 50% of the market. With one less competitor in the arena, the market share of Standard Chartered will be absorbed by the big players,” said Johnny Yu, head of warrants trading operations at UBS.

The competition is fierce in Hong Kong as players need to submit marketing, listing and trading fees, and provide continuous quotes plus swathes of documentation, which all adds up when it comes to internal costs, said Yu.

Currently, 538 warrants and 168 CBBCs issued by Standard Chartered are outstanding in the market, at a volume of HK$430m (US$55m) and HK$46m, respectively.

The decision to exit equity derivatives and convertibles was based on a thorough review of their future viability against the bank’s development plan and its need to use capital more efficiently, said the spokesperson.

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Stanchart cuts equity derivatives as the ‘miracle’ comes to an end