Market-maker of the year: Haitong International

Asia Risk Awards 2021

On the back of US sanctions imposed earlier this year on that country’s investments in China, Haitong International was poised and prepared to capitalise on the situation. It was in that vein that it is 2021’s Market-maker of the Year. A seemingly unfortunate turn of events enabled the firm to prove its mettle.

On January 11, an executive order from the outgoing Trump administration restricted US citizens from trading in securities linked to companies believed to have ties to the Chinese military. The move prompted US banks to pull hundreds of Hong Kong Exchange-listed derivatives warrants and callable bull and bear certificates (CBBCs) on vetoed Chinese firms. Several major US banks, including Goldman Sachs, JP Morgan, and Morgan Stanley, delisted their products in mid-January – including those linked to target companies in the Hang Seng and Hang Seng China Enterprises indexes and to China Mobile.

The move benefited Haitong, which ratcheted up its issuance in Hong Kong’s retail structured products market. The firm responded by issuing 569 warrants and CBBCs on HKEX in January 2021 – almost tripling the 198 products it listed earlier that month.

“We saw an opportunity because of the US sanctions, so we could expand our market share very quickly. Product issuance has been very aggressive to meet market needs, especially [Hang Seng Index] CBBCs,” says Ruby Wong, Haitong’s senior vice-president for equity derivatives.

Other non-US warrant issuers also increased promotion and marketing resources on warrants during this period, as US issuers were delisting.

The quality of [Haitong’s] service is very good. They offer [a] fast service, prompt replies and very professional advice

Nick Yuen, Glory Sun Financial Group

While it could be argued that the misfortune of its US competitors fell into its lap, the fact that the firm was able to step in and fill the gap left by these departing players so seamlessly is testament to the robust warrants business it has built up over the years.

“We are a market-maker for ETFs [exchange-traded funds], options and futures. Product issuance has risen, and we issued 3,000 products last year, much higher than the industry average. We were fourth in the market, and the only warrant issuer to engage stock futures market trading,” says Wong.

Product pricing in Hong Kong remains competitive, with different products appealing to different sectors and satisfying different client and non-client objectives.

According to Wong, Haitong’s warrant products are popular because of the firm’s competitive pricing strategy: “We also make use of Google Analytics, and always update the warrants page.”

Haitong launched a revamped website in July 2021.

Technical analyses help identify market needs. Yet, in the warrants market, this is difficult because margins are incredibly tight.

“Our technology … can collect all trading data, profits, losses, [market] volatility … analysing all terms [and] differentiating [between them],” says Wong.

However, beyond its position as a market-maker is the prudence with which the firm acted in terms of cash management at the onset of the pandemic last year. When a crisis strikes, you don’t know how long it will last – only that the more cash you have on hand, the more smoothly you will be able to ride it out.

“Since 2020, we have been taking the ‘stable-to-conservative’ risk appetite, particularly on liquidity risk management. We [had forecast] the impacts brought by the pandemic coupled with [a] deteriorating economy, and performed extreme stress tests to assess the potential impact, which helped us to better prepare for financial crisis. We had sufficient liquidity in hand even amid the stock market crash in 2020,” says Sun Pengfei, Haitong’s group head of risk management.

But, ultimately, what matters most is what Haitong’s clients think of the firm – and, on that count, it appears to be doing well.

“The quality of [Haitong’s] service is very good. They offer [a] fast service, prompt replies and very professional advice,” says Nick Yuen, deputy director of the company secretary office of Glory Sun Financial Group.

He relies on Haitong for current financial trends and investment opportunities for bonds and securities, as well as securities transaction dealing services.

Yuen says that Haitong has done well for itself when one considers the scale of operations of other firms active in Hong Kong offering transaction services. While large international securities firms such as Morgan Stanley or Nomura may have greater clout in the region, Haitong stands a notch above the other Chinese firms that are offering transaction services in the Hong Kong market, says Yuen.