Citi Gets Back Into Hong Kong Warrants Amid Volatility Spike

(Bloomberg) -- Citigroup Inc. is returning to Hong Kong's equity warrants market after a five-year hiatus amid a jump in volatility and rising demand for derivatives.

After issuing 39 warrants initially, the U.S. bank has plans to add more products this year, including callable bull or bear contracts, according to an emailed statement. The warrants cover major underlying stocks listed in Hong Kong, including HSBC Holdings Plc, Tencent Holdings Ltd., and Alibaba Group Holding Ltd., the New York-based lender said. A Citi spokesperson declined to comment further.

Citi, which along with other Wall Street peers exited the market in 2014 due to low returns, is now joining firms including Morgan Stanley in getting back into the difficult niche of the Hong Kong stock market as the coronavirus has caused trading and volatility to surge.

In total, $519 billion in such listed derivatives traded in Hong Kong last year, but because of thin spreads banks have to amass market share to produce adequate profits. Trading spiked to more than HK$20 billion a day in early February, according to Bloomberg-compiled data.

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Stock derivatives are popular in Asian markets, and investor demand for contracts to bet on equities in Hong Kong has remained robust despite the banks' comings and goings. For small investors, warrants and other listed derivatives provide exposure to moves in an underlying stock or index for a fraction of the price of buying them directly.

As of January, 3,182 CBBCs were listed and traded on the Hong Kong stock exchange, 100 more than a year earlier. They contributed 8.1% to the total securities trading turnover of the month, representing a 33% increase from December.

Bull or bear contracts allow retail buyers to make leveraged bets. To limit their losses, the products are canceled if underlying stocks exceed predetermined amounts.

--With assistance from Cathy Chan.

To contact the reporter on this story: Kiuyan Wong in Hong Kong at kwong739@bloomberg.net

To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, Jonas Bergman, Jun Luo

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