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Hong Kong's credit derivative markets grow strongly last year

2008-06-19 05:22

From:xinhua Article type:Reproduced

HONG KONG, June 18 (Xinhua) -- The credit derivative and securitization markets in Hong Kong grew significantly, with credit derivative activity jumping 61 percent and securitization transactions up 103 percent, revealed a survey here Wednesday.

The transactions were mainly entered into for trading purposes. Medium-term (one to five year) credit default swaps with investment grade reference entities continued to be the most common product, according to a survey published Wednesday by the Monetary Authority, the city's de facto central bank.

On the securitization market the survey found synthetic securitization surged 313 percent and accounted for 61 percent of the total outstanding securitization exposures last year.

The overall market activity heavily concentrated on a small number of institutions' activities. The market share of local banks, most of which participated in such transactions as investing banks, increased year on year from 69 percent to 83 percent.

Claims on central governments and central banks as well as residential mortgage loans continued to be the most popular types of underlying assets in securitization transactions.

The authority said the sub-prime fallout in the United States has prompted regulators and the market to be more cautious of certain securitization transactions. Regulators particularly are re-examining the capital and disclosure treatment of these transactions, which may shape future market activities.

To ensure the prudent development of the credit risk transfer activities of authorized institutions in Hong Kong, the Monetary Authority will keep a close watch on the development of international standards and work closely with the industry in promoting sound risk-management practices.

It will also consider further improvements to its data collection requirements to better capture institutions' exposure to complex-structured products given the rapid market developments and the potential risks these can entail as exemplified by the sub-prime crisis.

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