BNP Paribas has claimed a major milestone in the development of USD/CNH as an asset class in the Hong Kong warrants market after becoming the first issuer in Asia to launch FX warrants with USD/CNH (offshore Renminbi) as the underlying. The launch comes on the heels of the Hong Kong Exchanges and Clearing's move to introduce Renminbi currency options through a USD/CNH contract in March 2017.

According to BNP Paribas' head of exchange traded solutions Apac for equity & derivatives, Martin Wong, increasing volatility in the Renminbi means investors have been seeking tools to hedge risk and trade in new market conditions. As Hong Kong's only issuer listing FX warrants, BNP Paribas has seen increasing demand for this asset class.

'In June 2016, ahead of the Brexit vote and last November in the lead up to the US elections, turnover on FX warrants exceeded HKD36 million in each of these months,' said Wong, in a statement. 'Prior to 2014, as the Renminbi strengthened, many CNH investors acquired the currency in Hong Kong. However, with the USD strengthening on the back of Federal Reserve interest rate hikes, CNH holders are now looking for channels to hedge their CNH exposure.'

Traditionally USD/CNH options are traded over the counter (OTC) between institutions and banks, and it is expected that the listing of USD/CNH warrants will give investors with Hong Kong securities trading accounts the ability to take long or short positions, for both hedging and speculative purposes.

Wong also said BNP Paribas is also planning to market USD/CAD FX warrants at the same time, offering Hong Kong investors potential currency exposure to the Canadian dollar. This will enable investors with Hong Kong securities trading accounts to have the ability to take either long or short positions in the USD/CAD.

Both the USD/CNH and USD/CAD warrants have commenced trading on May 11, 2017.

Hong Kong's warrants and callable bull-bear contracts (CBBCs) market has maintained a strong momentum and reported a solid turnover for March 2017 as the Hong Kong equities market continued to rally, with the Hang Seng Index (HSI) adding over 10% in year-to-date turnover as of April 3. A total of 829 CBBCs were added to the SRP database in the month of March, 507 of those on the HSI.

The HSI remains the most popular underlying in the Hong Kong warrants market featuring in over 1,400 products followed by far by Tencent (254 products), Hong Kong Excanges & Clearing (94 products), and Hang Seng China Enterprises Index (77 products).

SRP data also shows that the competitive landscape in the warrants market in Hong Kong continues to be dominated by foreign banks with JP Morgan leading the pack (447 live products), followed by Credit Suisse (435 live products); Societe Generale (401 live products), UBS (370 live products) and HSBC (344 live products).

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