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Derivatives

Taiwan Structured Products Buybacks Take Flight

Initial forays in structured note buybacks in Taiwan have been made in recent weeks, which should be a hotspot for banks in Asia this year following regulations prompting domestic bond funds to unload their massive structured note holdings.

Initial forays in structured note buybacks in Taiwan have been made in recent weeks, which should be a hotspot for banks in Asia this year following regulations prompting domestic bond funds to unload their massive structured note holdings. Last year Taiwan's Bureau of Monetary Affairs halted bond funds, a multi-billion dollar sector, from making additional investments in structured products amid concerns of potential losses in a rising rate environment and the lack of a liquid secondary market (DW, 10/15). In response, derivatives houses, including Deutsche Bank and HSBC, laid out proposals to buy back outstanding structures and repackage the instruments (DW, 2/4), an effort which is now bearing fruit. "The regulators are pushing hard to have these positions unwound," said a senior trader in Taipei.

An official at HSBC said some TWD3-4 billion (USD97.3-129.7 million) in these instruments has been unwound in recent weeks. "This will be a very big theme this year. There were heaps of structured notes issued," said a trader at a bulge bracket house in Hong Kong. Market professionals estimated a total of TWD600 billion (USD19.4 billion) in structured notes are being held in bond fund portfolios.

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