Stock-Exchange Veteran Chris Concannon Moves to Bond Platform

A pioneer of electronic stock trading is moving to the bond market.

Chris Concannon is joining bond-trading venue MarketAxess Holdings Inc. as president and chief operating officer, the company said. He comes from Cboe Global Markets Inc., CBOE which operates stock, options and futures exchanges, where he held the same positions.

A spokeswoman for Cboe declined to comment.

An advocate of electronic trading since the 1990s, Mr. Concannon, 51, is making the move in the relatively early days of the corporate bond market’s transition to automation.

While stock trading has become nearly automatic, taking place primarily in central online markets, corporate-bond trading remains a largely manual process. Bond traders still negotiate deals over the phone or via electronic messages.

Yet the market is changing quickly, driven by regulation, upstart platforms and new technology. A recent survey by Greenwich Associates, an industry consulting firm, found that 26% of corporate bond volume was traded electronically in the third quarter of 2018, up from 19% in the first quarter.

“I see the corporate-bond market evolving, and it’s following a pattern I’ve seen before in my career,” Mr. Concannon said in an interview.

A lawyer by training, Mr. Concannon joined Cboe in 2017 after it acquired electronic stock exchange firm Bats Global Markets Inc., where he was chief executive. Mr. Concannon also served as president and COO of Virtu Financial Inc., a high-frequency market-making firm that trades stocks, currencies and other assets.

Mr. Concannon said he expects the move to electronic trading to accelerate as rising interest rates continue to roil the markets. “We’re approaching the end of a 10-year bull market,” he said. “There will be active trading in fixed income while the volatility of the transition occurs.”

About 85% of electronic corporate-bond trading by institutions in the third quarter was on MarketAxess, Greenwich’s survey found.

MAS to double individual limit on Singapore Savings Bonds, allow purchases via SRS funds

THE Monetary Authority of Singapore (MAS) will double the individual limit for holding Singapore Savings Bonds (SSB) and allow investors to buy the instruments using their Supplementary Retirement Scheme (SRS) funds, the financial sector agency announced on Monday.

The maximum amount of SSB that an individual can hold will be raised to S$200,000 from the current S$100,000, MAS said. Both changes will take effect from Feb 1, 2019.

The SSB programme has garnered about S$3.7 billion of investments from close to 100,000 individual investors since its launch in October 2015, MAS said. During this time, the authority has received requests from the public to allow the purchases of the bonds using SRS funds, which are voluntary retirement savings contributed by Singapore workers above the national CPF scheme.

"Taking into account public feedback, MAS has worked with the banks to enable SRS funds to be invested in SSB. This will expand the range of products available to SRS members and help them save and plan for retirement," MAS said in a press statement.

To apply for SSB using SRS funds, investors may apply through the internet banking portals of their respective SRS operators, which are the local banks – DBS, POSB, OCBC Bank and United Overseas Bank. As with cash applications, the minimum application amount is S$500, and a S$2 transaction fee deducted from the SRS account for each application.

The new increased individual limit on SSB holdings will apply to SSB purchased with cash and with SRS funds.

MAS will also launch a "My Savings Bonds" portal in March for investors to view their consolidated SSB holdings via the SSB website.

Hong Kong may hand tax breaks to woo hedge and private equity funds to its shores

[HONG KONG] Hong Kong has proposed widening tax breaks to include hedge and private equity funds that are domiciled in the city in a move market watchers say should encourage more of them to move there.

Locally domiciled vehicles that can only be sold to qualified institutions and wealthy individuals - such as hedge and private equity funds - will be eligible for an exemption from a 16.5 per cent profits tax for the first time, according to a council brief posted on the website of the city's legislature. Lawmakers are scheduled to have a first reading of the bill on Wednesday, and the government has recommended the change take effect on April 1.

Hong Kong has long been locked in a battle with Asian peers such as Singapore and Shanghai for the title of the region's premier financial center. The proposed change came after many years of lobbying by Hong Kong's local asset management industry, and after the European Union labeled the city's current profits tax regime for funds as "harmful."

This would "put us on a level playing field with Singapore," Paul Ho, Ernst & Young's financial services Hong Kong tax market leader, said in a telephone interview. It may also "attract more overseas asset managers to consider setting up their platforms here in Hong Kong," he said.

Hong Kong's asset management and fund advisory industry totaled HK$17.5 trillion (S$3.07 trillion) at the end of 2017, up 23 per cent from a year earlier.

Under the current rules, locally and overseas domiciled funds that are authorized for sale to retail, or individual, investors in Hong Kong are eligible for a profits-tax exemption, as are funds that have been established in offshore centers such as the Cayman Islands and that are only available for sale to institutional investors and wealthy individuals.

Even when they're ultimately run by managers in Hong Kong, most hedge and private-equity funds have their legal home in an offshore tax haven for economic reasons. There are conditions that locally established funds will have to meet to qualify for the proposed tax exemption, such as managers having a license from the local securities regulator, or a minimum number of investors.

Sovereign wealth funds also could be covered by the proposed change, Ernst & Young's Ho said. The loosened regulations will also likely be a boon for tech startups in the city trying to attract capital from money managers, he added.

Currently, offshore private funds cannot claim a profits-tax exemption for their investments in privately held, Hong Kong-domiciled companies, such as technology firms.

StanChart private bank sees future in price transparency

SOME private banks are more open than others - and a top executive at Standard Chartered's private bank thinks the time has come for clients to demand more pricing transparency from private banks.

Speaking to The Business Times in an interview, Didier von Daeniken, global head of private bank and wealth management at StanChart, noted out that few private banks offer an "open architecture" model.

This model is grounded in the promise that private-banking clients get the best-possible quotation on a forex or equity derivative based on quotations from a range of banks, rather than an inhouse quote from the bank's trading arm.

Many private banks may claim to offer an open-architecture model, but Mr von Daeniken said the litmus test comes only when clients can openly compare prices. And when that is done, he thinks few private banks would pass the test, despite their claims. Based on internal checks, he believes StanChart to be one of the few private banks that would."

"For me, it leads to the question, in the future, should we enable the clients to have that price discovery for himself or herself? And why not?"

Right now, clients who want to buy a forex or equity derivative - say a swap agreement to borrow one currency and lend another currency, or an option for the right to buy a stock six months from now - would usually call up the private bank to get a quotation, without having a full view of the range of quotations available.

So long as private banks can anonymise the name of other banks behind the prices being quoted on trades, then offering transparency of price ranges is something the business should embrace, he said.

"I quite like the idea."

A future of greater openness comes as regulators are raising their watch over pricing transparency and conflicts of interest within the bank. The transparency is driven by the tone behind the reforms written into a set of rules under the Markets in Financial Instruments Directive (MiFID) II out of the European Union.

Private banking clients are increasingly making their own trades for equities and bonds, but that is far less so for derivatives, which are mainly quoted via over-the-counter (OTC) trading. OTC trades, which are done between two parties, remain much more of an opaque market, when compared against a more open price discovery with various parties as is done on an exchange.

Given the broad lift in regulatory scrutiny, pricing transparency is a matter of course for the private banking industry, said Mr von Daeniken, who pointed out that while the private banking business is siloed in dealing with rich clients, it is, at its essence, managing the wealth of individual customers.

Given this, it is better for banks to step up than to wait for regulators to come a-calling.

"It's like with little children: it would be good sometimes if they do something before their parents tell them," he said, noting that banks need to work better with regulators, especially as financial crime remains the top risk for private banks such as StanChart.

"You get upset with the police when they tell you to buckle up. But then you get into an accident."

StanChart's private-banking business has fully de-risked its clients after some 21/2 years, said Mr von Daeniken.

He said StanChart's anchor in Asia, and particularly in China via Hong Kong, gives it a clear competitive advantage. When asked about the risk behind operating in China following the recent detention of a Singaporean UBS private banker in Beijing, he said that broadly, banks need to understand the regulatory environment in markets and to mind certain "idiosyncratic" risks.

With the bank's chief executive Bill Winters anchoring private banking as a core part of the bank's business strategy, the bank has been able to attract senior bankers in a tight job market. Close to half the bank's new hires are either executive directors or managing directors.

While StanChart private bank's assets under management (AUMs) globally as at last year of about US$65 billion does not put in among the bulge players, the unit's play as a key priority for the bank means staff "don't have to worry about our existence every year", said Mr von Daeniken.

The bank does not break down its AUMs out of Asia, but StanChart overall derives much of its business from emerging markets. The bank's annual client survey found that more than half its clients would like to do more business with the bank.

Mr von Daeniken noted that the bank is open to options to scale the ranks, but is focused on being among the top three private banks of choice for clients.

"We have a fair chance," he said, but declined to offer a target.

Asked more broadly about any new wave of consolidation in the private banking space in Asia, he said thus far, just two large transactions have significantly changed the complexion of the industry in Asia.

The more recent transaction was in 2012, when Julius Baer bought Bank of America-Merrill Lynch's non-US wealth-management business.

The second occurred in 2009, when OCBC snagged ING's Asian private banking business. The rest of the deals over the years have been smaller or appear to have been more bolt-on in nature.

But he noted that valuations are unlikely to come down, even amid any new wave of consolidation, as a private-banking business remains attractive to universal banks in particular, for the business unit's small appetite in capital and high return on equity.

"There has been competition in private banking since forever," he noted. "It's here to stay."