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Derivatives

HSBC Considers Setting Up Japanese Equity Desk

HSBC is studying whether to establish an equity derivatives presence in Japan next year, following a major equities push in other markets.

HSBC is studying whether to establish an equity derivatives presence in Japan next year, following a major equities push in other markets. Aik Sai Hong, head of global markets at HSBC in Tokyo, said the firm is now looking into obtaining a license via its securities arm to trade equity derivatives, though he added it is too early to say if the bank will go ahead. The banking giant has bulked up its equity presence in Paris and London (DW, 2/8) and is setting up a proprietary trading desk in Hong Kong (DW, 2/15).

If it goes ahead with the plan, Hong thinks HSBC could be trading Japanese equity derivatives by next year. The bank only trades cash equities in Tokyo. A trader at a rival house said, "It won't be that difficult for them to obtain a license." He speculated, however, that it would take around six months from submitting the application.

Rival equity players said HSBC could grab market share from the more established players. One equity head at a bulge bracket firm said the bank could tap its large private banking base in Japan for structured equity products as well as potentially build up a proprietary trading operation. He offered a warning to HSBC, however, that it could cost a lot of money to set up such a desk, adding, "Good people are hard to come by."

The equity derivatives market in Japan has taken off over the last 12 months, commensurate with the pickup in the cash market with end users for instance returning to OTC option plays (DW, 9/15/03). Prior to the pickup, the market had slumped for two years, which resulted in several notable participants including ABN AMRO (DW, 7/21/03), Bank of America (DW, 3/31/02) and CIBC World Markets closing desks in Tokyo.

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