Hong Kong Exchange plans suite of new exchange-traded products

[HONG KONG] Hong Kong's stock exchange is looking at introducing a suite of new exchange-traded products (ETPs) after rolling out an initiative to tighten trading spreads and enhancing liquidity in the US$38 billion market.

Hong Kong Exchanges & Clearing is considering four new types, including leveraged and inverse products that track mainland China A share indices, fixed income exchange-traded funds (ETFs), sectoral and thematic ETFs with underlying Chinese assets and those with an environmental, social and governance investing strategy, head of exchange traded products Brian Roberts said in interview.

The products tracking mainland indexes would be the "next source of innovation and diversification", he said. The recent increase in investor interests in fixed income ETFs seen in the US will also "come to Asia", he said.

As part of its three-year plan, the exchange is seeking to broaden its palette of trading, moving away from its predominant equity focus. The exchange on Monday initiated new rules that tightened so-called price ticks and introduced continuous market making obligations on ETPs. It's also getting help from the government, which is going to waive stamp duty for ETF market makers creating and redeeming units starting Aug 1.

At the end of April, Hong Kong housed 131 ETPs with a combined market capitalisation of HK$295 billion (S$53.72 billion). The first ETF was launched in the city in 1999.

The bourse scored a big win over its main rival in Singapore last week, signing a licensing deal with MSCI for 37 futures and options contracts. The agreement came as the city again braces for turmoil after Beijing moved to enact a national security bill.

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The unrest hasn't fazed investors, said Mr Roberts. "They see that Hong Kong has been and will continue to be a resilient market. When we are talking to investors throughout the region, the political backdrop is there. It didn't get raised in new discussion."

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