Yuan Ta Securities, a securities house in Taiwan, is talking with potential counterparties about pioneering a local market for convertible bond asset swaps.Samuel Wang, manager in Taipei, said the firm recently received a Securities and Futures Commission license to enter swaps on convertibles. The nascent convertible market could reach to TWD50-60 billion (USD1.5-1.8 billion) and this likely would fuel substantial demand for swaps. Officials at the SFC could not be reached.
In a possible swap with the holder of a convertible bond, Yuan Ta would likely pay a Taiwan dollar floating rate and receive the yield to put, a fixed amount based on the redemption of the convertible, as well as the embedded call option.
Yuan Ta is talking with local commercial banks as counterparties, Wang said, noting that foreign firms are currently barred from such transactions as they are only permitted to trade convertibles over an exchange, rather than the over-the-counter market.
One possible hindrance to the growth of the convertible asset swap market is a prohibition against the resale of the embedded equity option in converts. Yuan Ta is talking to regulators about amending this rule, which would further boost both the cash and derivatives markets, Wang noted.
