Multi-issuer platforms in Asia eventually will have to consolidate to survive in the region’s fragmented structured-note market, according to Mark Munoz, managing director of Contineo Ltd., which provides one of four such services in Asia. Viren Vaghela of Bloomberg Brief spoke with Munoz by phone.
Q: Contineo has been operating as a multi-issuer platform in Asia for 10 months. What have you achieved?
A: We have seven bank issuers: HSBC, Barclays, Goldman Sachs, JP Morgan, BNP Paribas, Societe Generale and Natixis, and hope to announce two more later this year. We also have five private banks including Julius Baer, JP Morgan Private Bank and BSI, and two more are lined up to join by June. They are both medium-sized firms based in Singapore.
We have an indication [from our research] that the size of the [Asia structured-note] market could be as big as $125 billion in [sales] each year, which is larger than the combined value of the Hong Kong and Singapore stock markets.
Q: Have you seen any recent trends in Asia structured-note issuance?
A: As volatility is low, trading volumes are flat, not just for our subscribers but for the industry as a whole. However, we have seen a lot of interest in Asia and US technology stocks as underliers, but less so for Europe (click here for March breakdown).
Q: Is there space for more than one multi-issuer structured-product platform in Asia?
A: I look at how networks for other asset classes work and you can have multiple networks. For Asia, it may be more challenging given how [spread out] the market is, so fragmentation will only hurt us and consolidation is inevitable.
Q: What big initiatives do you have planned for this year?
A: We expect to tackle issues such as common term sheets for the industry as it’s a cost and a pain. The private banks want standardized term sheets and the issuer banks on our network would like to do that to lower everyone’s costs.
Our big initiative, and we haven’t announced it officially, is that we are adding life-cycle management to the network this year. Life-cycle management includes notification of knock-in and knock-out events, notification of maturity and expiration dates, corporate actions and valuation information.
When we met with the private banks last year this was a constant source of pain for all of them.
Q: Given the huge structured-note markets in Japan and Korea, will you be expanding into these countries?
A: While we are focused on Hong Kong and Singapore, we are expanding our team and expect to grow our market presence in Japan and Korea in the coming years. Once or twice a month we are approached by an issuer or private bank in Korea, Japan and Thailand, so there is interest, but we are focusing on our two core markets until our platform reaches full scale.
Q: What’s the biggest challenge you and Contineo had to overcome to get to this point?
A: One is perception. There’s a lot of information in the market that it’s controlled by the investment banks which is unfair in some respects. We are a small company that has been able to make big strides in large part as we have been able to work with buy-side and sell-side banks on a number of standards that bring efficiencies to the market.
Q: You have companies from the same financial group on your platform as issuers and private banks. How do you ensure no information leaks from say JPMorgan’s private bank about issuing banks’ pricing to JPMorgan’s investment bank? Is there a Chinese wall in place?
A: Other issuers can’t see their competitors’ pricing, so issuer A can’t see issuer B’s pricing on the request for quote, but the private bank can see multiple pricing. We are careful on data dissemination and mindful of confidentiality.
Q: Now that you have secured a broad range of issuers and private banks, what are the chances of bringing on some of the biggest issuers and private banks in the market like UBS and Credit Suisse?
A: Without mentioning names, certain investment banks want to control their internal flow so a multi-issuer platform is a threat to their core business, but it’s inevitable in terms of what private banks want to see.
Even though some banks have their own networks and have invested heavily in them, they recognize the benefits of a centralized hub like Contineo. As the network grows and adds more payoffs, the value-add will become apparent.
This interview was edited for length.