Chinese regulators last month decided to allow UBS to trade total return swaps, Thomas Fang, the bank’s managing director for equities derivatives sales for Asia, said in a phone interview. The bank will use the derivatives to create structured products tied to local stocks, with plans to boost the size of its staff in the country for the business, Fang said. The China Securities Regulatory Commission’s press office didn’t immediately respond to a faxed request for confirmation.
Authorities in the world’s second-biggest economy are seeking to develop more sophisticated financial instruments, including structured investments known as wealth management products. The country announced a plan in December to start trial over-the-counter trading for domestic brokerages. The pilot program can include structured products, according to lawyers involved in the market.
In an equity swap agreement, one party pays the counterpart fixed or floating rates in exchange for gains in the reference asset. The derivatives can be used to create products that leverage returns on underlying stocks, Hong Kong-based Fang said.
UBS and other foreign banks in China have sold structured notes and similar products tied to overseas assets to local banks that repackage them into their own wealth management investments. For its own products, the Swiss bank will initially offer structured trusts or funds, Fang said.
Outstanding wealth management products issued by Chinese banks may have surged to 13 trillion yuan ($2.1 trillion) by the end of 2012 from 8.5 trillion yuan a year earlier, Fitch Ratings estimated in a December report.
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