Electronic Trading Levels in Hong Kong’s OTC Markets

by Hua Zhang, February 7, 2012
Industry Trends
Asia-Pacific

Abstract

In 2010, Hong Kong was the sixth largest FX market in the world and the third largest in Asia. There are a number of trading platforms operating in Hong Kong, such as ABP (Asia Bond Portal), BIA (Bond in Asia), and FXall.

In a new report, OTC Derivatives and Trading Platforms in Hong Kong, Celent examines the regulation dynamics in Hong Kong as well as the market size, trends in the OTC derivatives market, participant trends, electronic trading, and trading platforms. The most recent survey shows that interest rate swaps (IRS) represent over 73% of interest rate derivative transactions in Hong Kong, with about US$1.3 billion in daily turnover. As regulations change the credit landscape, the market continues to shift towards a model that is increasingly standardized and therefore rooted in electronic trading.

Some OTC trading platform providers launched new services in 2011, and some trading may be moved to exchanges. The HKEx is making preparations for the launch of RMB NDFs and IRS clearing by setting up a new OTC clearing house independent of its existing houses. Thomson Reuters, Deutsche Bank, and Standard Chartered launched their own RMB-related derivatives trading platforms in 2011.

“Many factors show that RMB-related derivatives will grow significantly,” says Hua Zhang, analyst with Celent’s Asian Financial Services group and author of the report, “However, the market size will be very small in the near future, because of few outstanding RMB assets.”

The current RMB settlement rate in the international trade is very small, at only around 7%. The daily spot RMB trading will reach US$1.8 billion in 2011 and $3 billion before 2014, while daily RMB FX swaps trading reached $0.3 billion in 2010, and will reach $0.5 billion in 2011.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Regulatory Dynamics

4

Market Size by Asset Classes

5

 

Interest Rate Swaps

6

 

Interest Rate Futures

7

 

Dim Sum Bonds

8

 

Credit Default Swaps

9

 

FX Spot

9

 

FX Forwards

11

 

FX Options and NDF

12

 

FX Swaps

12

 

Currency Pairs for OTC FX Transactions

13

OTC Derivatives Participants

15

 

IR Participants

15

 

Dim Sum Bonds Participants

15

 

CDS Participants

17

 

FX Participants

17

OTC Derivatives Trading Platform

20

 

Fixed Income and Interest Rate Derivatives

20

 

Foreign Exchange

21

OTC Derivatives Electronic Trading Level

23

Conclusions

23

Leveraging Celent’s Expertise

27

 

Support for Financial Institutions

27

 

Support for Vendors

27

Related Celent Research

28

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