Foreign exchange house of the year: HSBC

HSBC's ability to spearhead developments in both the offshore deliverable renminbi (CNH) and Islamic markets while recognising the increasing interconnections between southern hemisphere emerging markets keeps it in the winning seat as best foreign exchange house this year.

"HSBC is the best in terms of service and innovation," says one Singapore-based wealth management banker who trades CNH-denominated products, such as dual currency notes, with HSBC. "From a pricing perspective, they are better than the rest and their service is much better than other counterparties."

Providing more than $10 billion worth of CNH option products in the first half of the year alone and boasting similar volumes on the institutional side, HSBC's efforts have been centred around creating solutions for investors as the offshore currency became increasingly volatile. "As more initiatives took place over the past year, including the Chinese government's willingness to see a two-way market develop in the CNH market, we started to see more volatility in the CNH," says Selene Chong, managing director and global head of forex structuring at HSBC in Hong Kong. "Last year, a lot of the focus was on new initiatives, landmark trades in options and setting foundations, while this year has been about taking [CNH developments] to a whole new level."

HSBC added new features to its suite of CNH-denominated products aimed at corporate investors who needed to hedge their positions in case of CNH depreciation. To meet this need, the bank incorporated an Airbag feature into its existing range of renminbi-denominated forward products, with the aim of protecting corporates against periodic currency depreciation so that investors are not obliged to buy the currency at a pre-defined strike if the spot is fixed below the Airbag level. Having so far traded more than $1 billion worth of the product, the bank also expanded its CNH product offerings to the Taiwanese market, where it traded $700 million worth of the products.

"HSBC is very competitive, has good ideas that suit our hedging needs and is are able to find solutions for us," says Jacky Leong, associate general manager, forex trading at supply chain manager and processor of agricultural products Olam International in Singapore.

This year has been about taking CNH developments to a whole new level

Noting a surge in interest from South Korean investors in Latin American markets such as Brazil, HSBC started offering Brazilian real-linked structures in January, followed by the creation of its Brazilian real Convex Forward in June for a financial institution in Korea. "The product provided an ideal fit for Korean investors, who wanted a simple payout with a high potential return, and who took the view that the Brazilian currency would slowly appreciate against the greenback," says Ibrahim Gozubuyuk, associate director in forex and precious metals structuring at HSBC in Hong Kong.

Offering a 10% coupon at maturity, the one-year product differed from a forward transaction embedded in a typical carry trade by incorporating a convex forward that could offer a convex rather than linear payout profile. "Access to liquidity in Latin American currencies during Asian trading hours, a simple but innovative payout structure and the high guaranteed return were the key elements that appealed to clients and helped the success of the offering," he says.

HSBC also bolstered its Islamic products franchise by setting up an Islamic certificate programme that can offer investors sharia-compliant products. One of the bank's first trades with a private bank in Hong Kong brought in $12 million on the back of a capital guaranteed forex option certificate with a variable coupon linked to an equally weighted basket of renminbi, Indonesian rupiah and Philippine peso against the US dollar. "Increasing cross-border activity and south-south flows have led to a greater need for Asian clients to access other regional products," says Chong. "This has also led clients to be more aware of the range of hedging investment products they can have in the Islamic space."

In Malaysia, HSBC captured retail and private banking investors' interest in precious metals, which the bank offers as underlyings on its foreign exchange platform, by offering a short-dated, ringgit-denominated twin-win product linked to gold with the potential to autocall or be redeemed early. "Gold remains a popular theme among retail and private banking investors, who recognise it as a store of value in the midst of quantitative easing and as a hedge," says Chong. "We offered a product denominated in ringgit for local investors, because even though they want to go into gold they don't want to take the risk of having it converted into another currency."

In light of more demand from retail investors for short-dated products such as dual currency deposits, the bank integrated its pricing platform with its online banking services to enable direct online trading by end-users. "The difference is that this platform - which we offer direct to relationship managers in our branches and our private bank, and in some cases to external managers to give them access to our pricing and execution platform so they can tailor products - is now available to end-clients in Hong Kong," says Chong.