HONG KONG • Singapore and Hong Kong are seeking to snare a bigger share of the US$540 trillion (S$733 trillion) global derivatives business, taking advantage of tough new British 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 centres 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 centre 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 attract 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 per cent 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 centre for such deals. During the past three years, though, many banks have begun to review their Asia trade booking arrangements because of new British and European rules that have made Britain less attractive as a global hub for Asian risk. Brexit has made the situation more urgent.
Banks looking to book more trades in Asia include HSBC, Standard Chartered, UBS and Credit Suisse, one of the sources said.
For Hong Kong and Singapore, grabbing a much larger chunk of the global derivatives market would promote their status as global financial centres by helping them diversify away from asset management and offering them other benefits, according to one of the sources.
These would include boosting demand for consultancy and information technology services, and potentially boosting fees for local clearing houses that sit in between trades to guarantee payment.
An MAS spokesman said banks were looking to book more financial activity in Singapore due to the rapid growth of Asian markets and client preferences, among other reasons.
"In order to meet MAS' validation standards for the use of more advanced approaches in capital computation, financial institutions must demonstrate that they have robust risk management systems and processes to measure and validate the accuracy and consistency of all relevant risk components," the spokesman added.
The HKMA welcomed banks to establish a derivatives hub on the understanding that the risks associated with the activity will be properly managed.
"The HKMA has been in discussion with Asifma and its member institutions to explain the HKMA's supervisory policies and processes with regard to the establishment of a derivatives hub in Hong Kong," a spokesman for the HKMA said in a statement.
A spokesman for Asifma declined to comment. The MAS and HKMA are not working together on their separate initiatives.