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Collaborative solutions for better and wider access to liquidity, leading to improved management and hedging abilities



Best FX swaps and forwards house

Best FX prime broker in APAC

FX house of the year Hong Kong

HSBC explores how its collaboration-based offerings and solutions can provide greater and more efficient access to liquidity, and explains why opening up direct access to its global network gives corporate and institutional clients improved management and hedging abilities.

Winner of FX house of the year for Hong Kong, HSBC continues to expand its global intermediary services (GIS), winning mandates in new geographies across Asia, including those that are more restrictive and challenging, and providing solutions and access to liquidity. “We continue to offer these different services as part of our overall goal of helping clients access different currency markets and bringing our local expertise to the client, all around our global network,” says Selene Chong, head of global FX and commodities for Asia‑Pacific at HSBC. Areas of growth include the use of algorithms, alternative means of execution and FX overlay, where clients outsource their FX risk management to the bank through a transparent hedging programme. Working together with clients – who define parameters for the hedge to fit investment management or operational requirements – HSBC  then manages the end-to-end process on the client’s behalf. 

The bank has continued to make progress in the custody space – traditionally, custodian models expose clients to FX market risk, when there’s a time lag in executing the bond or equity trade, so they deliver a solution that helps clients outsource FX risk management to the bank. Their solution accelerates execution time to lower market risk and the associated tracking error, which they are able to do by leveraging the strength of local custodian FX businesses. “The accelerated FX solution is something we’ve developed and continue to see increased interest in from clients, as part of our GIS offering,” says Chong.

Also part of GIS, the bank’s FX prime brokerage offering has been recognised as the best in Asia this year, having demonstrated its ability to adapt to changing market conditions, margining rules and a shifting regulatory landscape. “We remain committed to this business,” Chong says, noting that “it builds on our core strengths; we know our clients, we partner with them for the long term and we understand their changing needs over time”. 


Leveraging the benefits of scale

One notable regional development that has played to the bank’s strengths and scale has been opening up ‘northbound’ investment into China under the new People’s Bank of China (PBoC) 159 rule – which has allowed corporates and investors alike to access the onshore FX market where they have the required underlying need to do so. In response, the bank has helped clients use this route to access the market, and has also received approval from PBoC to offer onshore renminbi via Hong Kong. 

“We’re opening up this offering to clients who bank with us anywhere in the world and, in turn, that branch will face Hong Kong as a centralised hub to then access the onshore market,” says Chong. This opening up of direct access to its global network gives corporate and institutional clients the improved ability to manage and hedge without having to set up new renminbi accounts onshore or elsewhere. 

To maintain their leading FX capabilities and market-making platform in the region, the bank has continued to make extensive investments in technology over the past few years, especially for their electronic offering. “We’ve also invested in our own internal pricing capabilities,” says Michael Rothlin, head of Group of 10 FX trading Asia‑Pacific, global markets – noting that the changes have resulted in faster, more robust and efficient pricing, and more efficient risk management. 

By investing in people, including technical expertise, the bank is able to offer a better client experience overall, while an expansive network across the region enhances connectivity. Their scale also allows for the recycling of risk and cross-border flows, from one group of customers to another: “Given our reach, we have the ability to try and internalise that as much as possible, and that has been a big focus for us,” says Rothlin. 


Volatility driving innovation

The ongoing trade war is causing increased volatility and liquidity in the FX market – and with the yuan front and centre, the bank is helping clients manage their FX risk in renminbi as they have always done, but with renewed vigour and ingenuity. “This year, we’re seeing further depreciation and continuing fluctuation, prompting clients to hedge their FX risk,” says Chong, noting this as a particular concern for corporate clients who have foreign currency debt and need to hedge against foreign currency exposure. Clients are also more open to hedging, sometimes going into a longer tenor than the previous year; volatility provides the opportunity for the bank to dynamically manage clients’ hedges, restructuring or optimising them as needed, with innovative tailored solutions allowing for greater flexibility in financing. 

Named best FX swaps and forwards house, HSBC has seen a lot of interest and volatility in Hong Kong dollar swaps over the past year, given that the Hong Kong Monetary Authority aggregate balance is somewhat lower compared with previous years. As a core market-maker for the Hong Kong dollar, the bank has seen a good amount of two-way volatility in the forward curve for the currency. 

The bank has also had growing interest in deal-contingent FX hedging – particularly for intra-Asia activities and in emerging markets – and has made strides in the area by investing in these capabilities. With the mergers and acquisitions market slow over the past year, clients have often found themselves in a position where the underlying deal is not completed, and they need to be able to walk away from the hedge so they don’t suffer a potential loss when
unwinding it. 

One case study in innovation is the cancellable range cross-currency swap. This was a tailored FX option solution constructed for Chinese clients hedging their US dollar debt who wanted to take advantage of the opportunity to refinance when it became available, whereas a traditional cross-currency swap would lead to losses when the market moved in such a case. The client also needed a hedge that was efficient in terms of credit-line usage, which was partly solved by giving them the right to cancel the whole hedge every six months by paying a fixed amount. In this way, if the FX market moved against the hedge, losses would be limited. This allowed the flexibility they needed, which is a recurring theme for the bank’s clientele – especially amid ongoing market uncertainty. “China is a core part of our strategy, so we continue to participate and assist in the development in whatever way we can, while at the same time, also servicing our clients around the world, who are telling us they have these needs,” says Chong.

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