Hong Kong and Singapore are seeking to snare a bigger share of the $540 trillion global derivatives business, taking advantage of tough new UK and European banking rules and uncertainty created by Britain's plans to leave the European Union. Over the past five months, regulators from the two Asian financial centers have been separately holding talks with the Asia Securities Industry and Financial Markets Association (ASIFMA), which represents global lenders in Asia, five people with direct knowledge of the matter told Reuters.
At the center of the discussions is what kind of regulatory changes would be needed in Hong Kong and Singapore to get more banks to book their derivatives business in one of the two places. If the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) are successful, they could lure billions of dollars of banking business and eventually create what could amount to thousands of jobs in Asia.
These derivatives would include products such as interest rate swaps or foreign exchange derivatives, which allow companies and investors to hedge their exposure to interest rate rises and currency swings. Asia has traditionally accounted for less than 10 percent of the global over-the-counter derivatives market, according to
Bank for International Settlements data. Global banks have typically held the majority of Asia-related trades on their European balance sheets, with London being a major booking center for such deals. This has allowed them to gain economies of scale by aggregating their capital and infrastructure in one or two locations, while London also has a deep talent pool of employees with expertise in managing and processing the trading book.
During the past three years, though, many banks have begun to review their Asia trade booking arrangements because of new U.K. and European rules that have made Britain less attractive as a global hub for Asian risk. Brexit has made the situation more urgent by prompting many banks to move some of their operations, including trading books, out of London. This has sparked broader internal discussions over whether more of the London book holding Asia trades should also be moved to Asian financial centres, the sources said.
Banks looking to book more trades in Asia include HSBC, Standard Chartered, UBS and Credit Suisse, one of the sources said. In a statement, HSBC said it would support clients as they pursued opportunities in Asia: "Hong Kong is one of the world's leading financial centres and continues to be at the heart of HSBC's growth plans." UBS, Standard Chartered and Credit Suisse declined to comment.
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