From the November 01, 2010 issue of Futures Magazine • Subscribe!

Hong Kong and Singapore: Rising Asian stars

Founded in 1865 as "Hong Kong and Shanghai Banking Corporation," HSBC is the world’s largest banking and financial services group. It’s based in London, but when Stuart Gulliver starts his new job as chief executive of HSBC in January, he’ll be based in Hong Kong — surrounded, no doubt, by familiar faces.

That’s because the global financial community now considers Hong Kong to be a financial center on par with London and New York, according to Z/Yen Group’s eighth Global Financial Centres Index (GFCI 8). The survey, published in September, draws on responses from more than 7,500 international financial services professionals and also shows Singapore rapidly moving up the global rankings (see "Asia Rising," below).

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Hong Kong has been ranked as the freest economy in the world for 15 consecutive years by the Heritage Foundation, even though it’s a "Chinese Special Administrative Region." The tiny nation’s financial services regulator, the Securities and Futures Commission, says more than 7,300 people and firms applied for licenses in the first seven months of this year. That’s an increase of 46% over the same period in 2009.

The Futures Industry Association (FIA) says that the combined trading volume of derivatives contracts on exchanges in the Asia-Pacific region surged more than 25% in 2009 and surpassed that of North America in the first quarter of this year to become the world’s leading trading region for the first time ever — a fact highlighted in a report by Boston-based consultancy Celent called "Derivatives trading in Asia: Struggle for regional supremacy."

The GFCI 8 also shows that Shanghai entered the top 10 and Seoul moved into the top 25. Shanghai is home to the Shanghai Futures Exchange, and Seoul, the capital of South Korea, is home to the Korea Exchange (KRX), which hosts the KOSPI 200 — options on which are the most traded contract on the planet. Indeed, in terms of volume, KRX is responsible for half of all Asia-Pacific volume, with the National Stock Exchange of India (NSE) a distant second, thanks largely to single-stock futures.

All of these centers, however, are off-limits to U.S.-based retail futures traders. Although KOSPI 200 futures are listed off-hours on CME’s Globex platform and a daily version of the options is listed on Eurex, KRX can only be accessed in prime time via domestic brokers, while India and China themselves remain hermetically sealed behind regulatory walls that are coming down slowly. Finally, Taiwan places restrictions on foreign accounts that make accessing these markets too difficult for most foreigners (see "So close but so far," below).

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Over time, many Asian contracts may become available via intermediary platforms such as Globex. CME and NYSE.Liffe are both working aggressively to develop joint ventures with Asian exchanges. In addition to its deal with KRX, CME shares the world’s oldest trading link with SGX, and its palm oil contract was developed jointly with Bursa Malaysia. CME also lists futures on the yuan/euro, yuan/dollar and a handful of Asian equity indexes.

Until now, however, most Asian derivatives products have remained just out of reach because Hong Kong and Singapore, despite their top-notch communication networks, business-friendly governments and critical mass of skilled professionals, have had scant offerings in the futures department.

That could change in the next few years thanks to the arrival of glittering new exchanges with a clear derivatives focus and a mission to challenge established players.

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