The Daily Update - Hong Kong derivatives, Trump tax plan

It would appear that both Hong Kong and Singapore are set to benefit from the Brexit situation and the onset of MiFID II through the global derivative market. The market is valued at around $483 trillion with the majority of transactions booked on balance sheets in Europe and the US. But with the onset of the new regulations in Europe the benefits of economies of scale and favourable Western regulations will be diminished.

The Hong Kong Securities and Futures Commission is reportedly looking into adjusting their rules to permit ‘advanced risk models’ which in turn would reduce capital requirements, and make the once British colony an advantaged central hub for booking derivative transactions. This in turn would increase the demand for risk managers and add to the revenue in the Special Administrative region, according to the Hong Kong Financial Services Development Council. A Hong Kong Monetary Authority (HKMA) spokeswoman said in an email that ‘A number of international banks have told us that they see advantages in booking their Asian risks in Hong Kong’. Rumour has it that HSBC Holdings Plc and Standard Chartered Plc have already started shifting a portion of their books to Hong Kong, and Morgan Stanley amongst others are also looking to move an element of their book to Asia.

In the US, President Trump unveiled a nine page tax reform framework, but once again the detail appears to be sparse; at least the process has been kick-started and should lead to some form of dialogue. However, even though the US Treasury market sold off immediately - with the longer-dated yields taking the brunt due to concerns as to how any tax cuts would be funded - the big gaps in the plan as to the winners and losers and the future outlook for economic growth disseminating from the plan, at this early stage in negotiations, are very hard to judge.

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