Quite simply, one calculates a price of what the instrument should be worth and hopefully the theoretical price will not differ too much from the price one gets if one actually sells it. The credit rating is often a decisive factor in the pricing. The structured products are thus more adapted to investors’ needs than the purely securitised products. But this has been at the cost of poorer liquidity. Special investment companies soon emerged It is essentially a good thing that new instruments make it possible to trade credit risk. Insurance companies, pension foundations and other institutional investors benefit from being able to invest in such products. And if the banks’ balance sheets are relieved of the credit risk and investors with capital take on the risk, it is a positive development for financial stability. It increases the system’s capacity to manage shocks. However, not all of the credit risk has moved from the banks to financially strong investors. In recent years, many banks have started special investment companies that are separate legal entities outside of the banks’ balance sheets. What these have in common is that they invest in assets with a high return and long duration, for instance, structured credit products, and finance themselves by issuing certificates in the short-term money market. The certificates are called Asset Backed Commercial Paper (ABCP). Depending on how they are constructed, the investment companies are often called "conduits” or Structured Investment Vehicles (SIV).
Howard Lee: Keynote speech - ASIFMA China Capital Markets Conference Keynote speech by Mr Howard Lee, Deputy Chief Executive of the Hong Kong Monetary Authority, at the ASIFMA China Capital Markets Conference, Hong Kong, 27 June 2023. *** Good afternoon, everyone. It's a pleasure to be here at the China Capital Markets Conference, and I'd like to thank ASIFMA for organising this event and inviting me to speak. Today's conference covers a wide range of topics, from opportunities and developments in China's capital markets to key trends like digital transformation, green and sustainable finance. As we all know, Hong Kong has always been the hub connecting Mainland and international markets, and currently intermediates two-thirds of cross-border direct investment and securities investment flows. It's an exciting time to be discussing how we can further leverage connectivity in China's and Hong Kong's financial markets and explore the key trends for the next stage of China's opening up. China's National 14th Five-Year Plan emphasises the importance of pursuing a higher level of opening up and promoting high-quality development. Despite the challenges presented by the Covid-19 pandemic, China's reform and opening up has continued to deepen. There are continued expansions of the Connect schemes, and foreign ownership limits on securities firms and mutual fund companies have been removed. These developments are encouraging and welcomed by the industry. Mainland authorities have reiterated that China will only open its door wider going forward, with Hong Kong continuing to play an indispensable role.