Hong Kong's authorised institutions' activity in the credit derivative and securitisation markets saw significant growth last year, with credit derivative activity rising 61% and securitisation transactions up 103%.

According to a Monetary Authority survey published today there were no significant changes in the nature and type of credit derivative activity undertaken last year.

The transactions were mainly entered into for trading purposes. Medium-term (one to five year) credit default swaps with investment grade reference entities continued to be the most common product.

On the securitisation market the survey found synthetic securitisation surged 313% to account for 61% of the total outstanding securitisation exposures last year.

The overall market activity heavily concentrated on a small number of institutions' activities. The market share of local banks, most of which participated in such transactions as investing banks, increased from 69% to 83%.

Claims on central governments and central banks as well as residential mortgage loans continued to be the most popular types of underlying assets in securitisation transactions

Risk management

The authority said the US sub-prime fallout has prompted regulators and the market to be more cautious of certain securitisation transactions. Regulators particularly are re-examining the capital and disclosure treatment of these transactions, which may shape future market activities.

To ensure the prudent development of the credit risk transfer activities of authorised institutions in Hong Kong, the Monetary Authority will keep a close watch on the development of international standards and work closely with the industry in promoting sound risk-management practices.