Asian regulators' increasingly open stance toward the international financial markets has removed many of the barriers to trading in domestic markets and will likely slowly kill the market access products industry. Market access products allow foreign investors to access off-limits markets via buying a derivative linked to that market, which is a lucrative multi-billion dollar a year business for the banks.
"Regulatory hurdles are diminishing, we're seeing more hedge funds becoming comfortable setting up their own accounts and dealing direct, which is a cheaper route" said Nigel Beattie, head of the Pacific Rim investor client group at Merrill Lynch in Hong Kong.
India, a massive access product market given the performance of the underlying equities, is liberalizing its market and as result these products are becoming less useful. In recent months India increased the trading limits on index futures for foreign players (DW, 9/24) meaning they can now do more trades directly. "Amending the limit on index futures resulted in an explosion in foreign participation in this segment. Next I expect relaxation for single-stock futures, but this won't be imminent," said Citigroup's Kennedy. "Within 24 months I expect the access market to decrease significantly as the foreign institutional investment process is becoming less onerous," added Beattie. It's not all bad news for the banks however, "One door is closing, but three or four others are opening," said Kennedy.
In Korea, bankers have gradually been moving more of their business onshore because of regulations easing the rules. For instance, several international securities houses, including Lehman Brothers, Merrill Lynch and Morgan Stanley (DW, 10/22), have set up onshore operations and are considering entering the domestic equity derivatives market.
In China, however, market access products will continue to flourish for the coming years because the market is only in the first stages of opening up (DW, 6/16).
