Banks are starting to approach the Taiwanese regulator to see how they can purchase or restructure structured products fixed income funds bought and which have subsequently performed poorly. The derivatives houses are said to be looking for permission to buy the assets at a discount and then repackage them.
Last year regulations enacted by Taiwan's Bureau of Monetary Affairs prevented bond funds, a multi-billion dollar sector, from making additional investments in structured products amid concerns of potential losses and the lack of a liquid secondary market (DW, 10/15). The majority of structures purchased in the last two years are inverse-floating notes and with domestic and U.S. rates rising, such holdings have been underwater.
HSBC is one of the firms looking at possible solutions. "We're in talks with the regulators and are proposing a solution. We've already spoken with several customers and are getting positive feedback," Samuel Koh, head of domestic derivatives trading at HSBC in Hong Kong. Koh declined to elaborate on the firm's plan, but noted it is looking to get the go-ahead from the regulators within the next few weeks.
Market officials have noted the regulators are concerned that huge losses could trigger a wave of redemptions and are therefore looking for a solution shortly before potential rate increases.
