Innovative Investor - How do HNWIs in Asia view succession planning? And how is this different from HNWIs in the West?

Mark Smallwood - In the West, a large percentage of the population dies intestate: that is, without a legal Will. The figures are probably even higher in Asia given the greater cultural sensitivities around discussing the issue of passing away. Our key message to our Asian clients is that this should not be a discussion about death but a discussion of legacy. The family wealth is not for just one generation but, hopefully, for many generations to come so it is clear that planning on the intergenerational transfer and continuity of this wealth is an especially important decision for the successful businessperson.

In China, for example, the system is similar to most western countries - if there is no Will the state decides which family and relatives will receive the assets and in what proportion. If a legal Will does exist then the assets will be distributed in accordance with the deceased's instructions. The simple advice we give to our clients is to visit their legal advisor and to at the minimum execute a valid Will.

The execution of a valid Will means there is a clear, unambiguous record of a person's wishes for their legacy and the transfer of the estate can occur much more quickly than under a statutory process. The costs associated with the transfer of the estate are also lower than under a statutory process.

It is common for HNWIs to have assets in multiple jurisdictions so in drafting the Will, it is important the legal adviser knows of all jurisdictions in which the assets are based. In some cases a foreign Will needs to be drawn up subject to the laws of the jurisdiction in which the assets are located.

Innovative Investor - In many jurisdictions, HNWIs use trusts as an estate and succession planning vehicle. What are the key benefits of setting up a trust?

Mark Smallwood - One of the main benefits of a Trust as a succession planning vehicle is that it is a private contractual arrangement between two parties, the Settlor and the Trustee. As a private document, a Trust is not subject to public scrutiny, whereas a Will is a public document and requires execution through a court. Under a Trust arrangement, the Settlor transfers the title of the assets to the Trustee who holds the assets on behalf of the Settlor for the beneficiaries who are selected by the Settlor, and may indeed include the Settlor.

For example, Mr A transfers the title of his bank accounts to a professional trust company that holds his assets for his children. In the Trust agreement, Mr. A and the trust company agree that during Mr A's lifetime he can manage the bank accounts and instruct the Trustee to make payments to him or third parties.

A trust agreement might also state that in the event of Mr A's death, the Trustee should hold on to his assets until any children reach, say, 25 years of age. In the meantime, the Trustee can use their discretion to make payments on behalf of the children until they turn 25 for matters such as education, healthcare and general living expenses.

Innovative Investor - There are many HNWIs, especially Chinese private investors, who have offshore assets. What are the main aspects of cross border planning that investors should be mindful of?

Mark Smallwood - Chinese HNWIs, for example, often may have assets outside China, taking the form of businesses, real estate and bankable assets. Many of our clients send their children overseas either for further education purposes or to help build their business empires. Such a move might be permanent or temporary - or as often, temporary and end up permanent.

Often clients fail to correctly plan their personal financial matters appropriately across borders. A common example is the case of a wealthy Chinese family sending their son to a university in the US. When the son finishes his postgraduate studies, he decides to stay on to expand the family's business in the US market. The son obtains a Green Card, is the owner of the US business and his longer term plan is to return to China once the business is up and running and take over the family business from his father when he retires.

What most individuals fail to realise is that the US Green Card is a permanent resident certificate, and subsequently the US assumes the person has the intention to reside permanently in the US. In the above example, the son who has been residing in the US for the last 10 years is a US taxpayer and his world wide income in the US is taxable regardless of where he resides. So, on returning to China, he is still subject to income, capital gains and inheritance tax in the US as well as China. This means that when he inherits the Chinese family business from his father, that business will now be in his taxable US estate and, when the son himself dies, the Chinese family business that he inherited will be subject to US inheritance tax, which could be as high as 55%.

Those planning to surrender their Green Card should also be aware that under recent legislation in the US, individuals who have held a Green Card for more than eight out of the last 15 years will also be subject to an exit tax based on mark-to-market valuation of their worldwide assets as well as continuing US tax on US source income for a period of 10 years after this date, and should they spend more than 30 days in the US in a year during this 10-year period, they will be taxable on their worldwide income.

Unexpected tax consequences can be avoided for wealthy families moving out of the borders of China by putting in place effective succession (legacy) plans for the non-Chinese situs assets. In the above example, if the son had stayed to work in the US under a Visa arrangement (a Visa is not a permanent resident certificate), at such time when he returns to China, he simply surrenders the Visa and is no longer subject to US taxes. Also if the son intends to remain in the US and the father in China, rather than leaving his assets directly to the son, the father could leave selected assets to a carefully structured Trust. In this regard, the above structure would derive asset protection benefits in addition to the tax benefits.

For wealthy Chinese persons with international assets or family members residing in different parts of the globe, potential tax consequences must be understood and appropriate measures need to be taken to legally ensure that tax exposure is minimized and that there is an effective structure in place to ensure the smooth succession of the family legacy, whilst conforming to foreign and domestic laws.

Innovative Investor - What other advice can you give private clients looking to protect their family and business legacy?

Mark Smallwood - Another building block in planning the intergenerational family legacy is the use of life insurance to secure protection for both the family and the business, and health insurance to provide for private health care costs for family members. The same principles that govern the family are also applicable to the business.

The two principal types of life insurance are term insurance and whole life insurance. Term insurance is designed to provide a payment of capital on the death of an individual during a specific period of time, while whole life insurance is designed to pay out upon the demise of the insured. In practical application, term insurance will be used to mitigate short term liabilities - for example in the case of a large loan taken out to fund a capital investment in the family business. If the loan is expected to be paid down over five years - and the patriarch were to die within this five-year period, there may be a significant problem due to his 'Key Man' status in generating business profits. In this case the business can insure the 'Key Man' for the amount of the loan for the five-year term.

In the case of whole life insurance, the family patriarch may decide that while his son is likely to take over the business when he passes away, he would also like to ensure that his daughter receives a commensurate cash amount to ensure her long term security. In this case, the liability arises on the eventual passing of the patriarch so he will undertake a whole of life policy on his life for the benefit of his daughter, with the payment being made on his passing whenever that should arise. Often the policy itself may be held in a trust structure.

Finally, many HNWIs should also consider private medical cover for them and their families. For a modest outlay, a comprehensive cover can be secured to cover 'catastrophic situations' such as multiple injury road accidents, for example, where the medical costs could be significant. A good healthcare policy could prove invaluable even to a very wealthy family.

Innovative Investor - What is the role of private banks when addressing succession planning needs of high net worth clients in this region?

Mark Smallwood - With the growing sophistication of the financial sector in Asia, we see a polarisation of services as it occurs internationally, and it is important for HNWIs to understand the different service levels provided by banks, brokers, family offices and independent asset managers.

The private banking arm of a major bank should be able to address multiple needs of HNWIs utilizing not only their private banking platform but the investment banking, corporate finance and for succession planning their Fiduciary Services platform which will typically take the form of a number of trust companies in various jurisdictions. Clients are reassured that by having a major corporate balance sheet behind their trustee, they have the peace of mind to know that there is a solid long term foundation in place for the long term management of their fiduciary assets (which are not on the trust companies balance sheet). Furthermore the private bank will normally have good connections with non-banking specialists such as tax and trust lawyers and insurance brokers who provide complementary solutions and advice.

Typically the client raises the issue with their Relationship Manager who is the point person and who will bring in specialists such as the bank's Wealth Planners to discuss the clients' needs and recommend appropriate solutions to their requirements. The ultimate goal is to ensure that the clients' holistic as well as investment needs are fulfilled.

The publication of Making Sense of Structured Products in its second public consultation coincided with the lifting of bans on the sale of structured products imposed on 10 financial institutions in Singapore in July 2009.

The Singapore financial watchdog was careful to state it was investigating further one of the more contentious issues surrounding a statement that it would define 'complex investment products', instead producing a list that will include shares, units in business trusts, real estate investment trusts, plain vanilla bonds, money market instruments, life insurance policies (other than investment-linked policies) and structured deposits (including dual-currency investments, which banks can no longer call dual-currency deposits).

"The MAS is not going to proceed with the original proposal of an enhanced regime for 'complex investment products' and is instead proposing a completely different regime," said Jacqueline Low, senior counsel for Asia at the International Swaps and Derivatives Association in Singapore. "The MAS will decide what they think are low-risk products, and will have the power to put on an excluded list products that are not subject to the new regime for listed, and now some unlisted, products."

The regulator has asked interested parties to suggest products that should go on the excluded list.

The latest consultation paper deals with sales to investors that are not deemed to be institutional, expert or accredited under the Securities and Futures Act (SFA) and Financial Advisers Act (FSA). Section 4A of the SFA imposes a means test which puts individuals with net personal assets of at least S$2 million or an income in the past year of $300,000 or more in this category.

For unlisted, non-excluded investment products, a 'customer knowledge assessment' (CKA) must be conducted by the intermediary before selling each product and approved by a person independent of the financial advisory function, proposes the MAS. If the customer is assessed under the CKA not to possess the relevant knowledge or experience, the intermediary must advise the customer whether such a product is suitable for the them. For execution-only transactions, the customer must be deemed by the CKA to have the relevant knowledge or experience.

"It appears that investment products that are derivatives or contain embedded derivatives will fall within the definition of 'non-excluded investment products'", said Chris Lee, head of risk management products intermediaries at UBS in Hong Kong.

The widely expected move by the SFC was announced following a consultation period during which the regulator received 21 responses from market participants to its July 31, 2009, consultation paper on increasing short-selling transparency. This paper discussed two possible approaches. The first was to enhance current transactional reporting and the second was to introduce a new short-position reporting model.

"A build-up of large short positions may be potentially disruptive to market stability," said SFC chief executive, Martin Wheatley. "A short-position reporting regime will not only complement Hong Kong's robust short-selling regulatory framework but will also provide a more complete picture of short-selling activities in our market."

Under the proposed regime, the reporting obligation will be triggered if a short position is equal to or exceeds 0.02% of the issued share capital of a listed company, or a market value of HK$30 million, whichever is lower. The SFC said weekly reports must be submitted until the short position falls below both trigger levels. The SFC will publish aggregated short positions of each stock on an anonymous basis a week later.

The proposed short-position reporting regime is applicable for constituent stocks of the Hang Seng Index, the H-shares Index, financial stocks and other stocks specified by the SFC. Derivatives will not be included.

The new reporting system will be implemented through the introduction of subsidiary legislation.

"Whereas the emerging market trade has traditionally been played through Bric baskets, other currency baskets are gaining a lot more traction because of the extent to which investors have ploughed into Bric over the past six months," said one head of forex structuring in London. "This has blown out a lot of the correlations and made it prohibitively expensive to enter into that trade."

Correlation between Bric currencies has risen steadily since the onset of the crisis as investors have allocated heavily in favour of emerging markets rather than G-10 currencies, with the view that developed-world countries are laden with debt and have lower potential growth rates.

Average six-month Bric correlation has increased from 16.4% on December 31, 2007, to reach 20.2% on July 14 last year and 37.9% on August 25, according to Deutsche Bank. Correlation remained above 20% until the end of February this year and priced at 19.7% on March 4. On the same dates, six-month Bric excluding Chinese renminbi correlation priced at 21.9%, 32.6%, 51.5% and 38.9%, respectively.

Meanwhile, dealers are also advising investors to pitch emerging market baskets against alternative currencies. Typically, emerging market baskets have been played against the dollar, but some dealers are touting the yen as an alternative. "We think the yen is going to be hampered by the fact it will be once again be used as a funding currency," said one forex dealer. "Now the breakdown of the carry trade has subsided, we are bullish on USD/JPY, particularly if the US Federal Reserve starts to raise rates."

UK-based Managing Partners, a life settlement investment company, has recently set up in Asia and has been pitching life settlement assets to Asian institutions in open-ended fund form. Credit Suisse has been growing its teams, pitching a synthetic pass-through risk structure to institutions, and other investment banks are also involved or looking to get involved in the market, according to sources.

One Asia-based senior actuary at an international insurer said there is "certainly potential" for such products in the lower interest rate environments in Asia, in markets such as Japan, Korea and Taiwan.

Harvey Athwal, Managing Partners' sales director for Asia based in Hong Kong, said the company is receiving most interest from Japan and South Korea, and that pension funds are most interested in the assets. He says insurers and pension funds are more comfortable making investments in an asset where the use of mortality tables is an important component to understanding valuations.

Three years ago, he says, a 9% return was unlikely to have proven been particularly attractive to Asian investors, with most seeking returns as high as 20-30% a year - even pension funds. "After the markets moved downhill, and volatility moved into the markets in a big, big way, people wanted to head for safety assets," says Athwal. "The risk taking isn't there."

Proponents of life settlements believe they provide a non-correlated return with little volatility. They are not correlated to equities or credit, according to Athwal, because they are based on receiving the returns of life insurance policies when the purchaser dies, which should not be connected to the performance of financial markets.

The policies are bought from seniors, averaging 80 years' old, in the US, who might typically have cancelled their policy to save money in the past. Increasingly, however, they are selling their policies after US regulators forced insurers to make policyholders aware of the opportunity to do so. Mortality tables are used to calculate how much it will cost to fund the policy for the average lifespan, which is the investment capital put forward by the investor.

Athwal said life settlements are bought at present value, and offer a guaranteed profit at some date in the future. He explains they have absolute returns because it is known in advance how much eventually will be returned by the policies, and they have almost no volatility. There are two risks associated with the asset class: firstly longevity, which can be mitigated by buying large numbers of policies in a fund, and secondly counterparty risk. He noted the second factor is met by US state guarantees, which guarantee the policies up to $500,000, the exact number depending on the state, meaning an investor would still get the returns if the insurer went bust - as long as the state did not also default.

Managing Partners is offering open-ended funds on the asset class, and recently became the first company to have a life settlement fund authorised for distribution into Korea. The company is also in discussions with two asset managers in Korea with a view to launching feeder funds, and is developing partnerships in Malaysia, Singapore and the Philippines. It is looking to raise $300 million in Asia for its fund this year and has already received mandates for $200 million.

MyMarkets gives investors access to investments, including structured products, across all asset classes and aims to give them more control over what they do with their money. The platform was soft-launched a year ago and RBS is now rolling it out across Asia.

"We have come through a tough few years, and a lot of people now want to become more hands on with their own trading," said Kevin Chin, head of derivatives platform sales for Asia at RBS in Hong Kong.

He added that Asian investors are accepting of technological advances in the way they invest. "It has changed the way people invest because we are empowering them and they can get more involved in the investment process," said Chin. "It also helps to educate investors more, as there is now easier and greater access to information."

The platform cuts out the time lag that usually occurs between investors taking a market view, selecting an investment and receiving confirmation of the investment. It adds to the MarketDirect and MarketIndex trading platforms RBS is already operating in Europe.

The HFRq Hedge Fund Replication Long Index and the HFRq Hedge Fund Replication Short Index are based on the HFRI Fund Weighted Composite Index. Unlike most hedge fund replication indexes, which are backward-looking and use historical data, the indexes use a forward-looking measure and risk-metric sensitivity data - which works like a stress test for hedge fund indexes - to try to achieve closer correlation with the underlying indexes than other hedge fund replicators. The indexes have a correlation of 93% to the underlying index.

Hedge funds have come under scrutiny over the past couple of years during the financial crisis as they lack transparency and are illiquid, making it difficult for investors to take their money out once they are invested in them. They are also inaccessible to a lot of investors that do not have the capital available to meet investment requirements and also charge high management fees.

"Hedge funds have generated good and enhanced risk-adjusted returns compared with long-only equity or fixed-income investments," says Mohamed Yangui, managing director, head of product development and structuring at Nomura in London. "But they have drawbacks, which we have seen over the past couple of years. There has been a need for liquid and transparent underlyings, which is why hedge fund replication indexes have become more popular. They address these problems and allow investors to have hedge fund-like exposure with an efficient cash use."

Exposure to the index will be offered through structured products and through a Ucits III fund, issued by Nomura.

In this new role, he will oversee the products and investment solutions areas as well as providing infrastructure to enable relationship managers to offer comprehensive and integrated financial solutions for clients' private and corporate assets.

He maintains his existing role as head of structured derivatives for Asia Pacific for the private banking division. Based in Singapore, Schlossmacher reports to François Monnet, head of private banking for southeast Asia and Australasia.

Schlossmacher re-joined Credit Suisse in October 2009 from Barclays, where was the regional head of investments and products and head of structured products Asia for Barclays Wealth. Prior to this, he spent 17 years with Credit Suisse's private banking division in Singapore, Hong Kong and Zurich, covering structured product sales and advisory, investment consulting and portfolio management.

Value-at-risk is a widely used indicator that evaluates the potential loss of capital using market risk rather than just volatility. The valuations company has also unveiled a stress testing tool so clients can simulate the effect of a market crisis or other customised scenarios on structured products portfolios.

The VAR methodology takes into account changes in equities, dividends, volatility, correlation and interest rates, said Eric Benhamou, Paris-based chief executive of Pricing Partners. "It has been easy to find providers of VAR on simple products, but much trickier to find it on complex products."

In a statement, S&P's said it believes with increased certainty that the government can restore its financial soundness over the next several years will be key to improving the sovereign credit ratings on India (BBB-/Negative/A-3).

Takahira Ogawa, credit analystat S&P's, said: "For India, progress on fiscal consolidation is one of the most significant factors in our assessment of the sovereign credit rating. The Reserve Bank of India's handling of emerging inflationary pressure and the country's growth prospects over the next several years will also be important to stabilize the rating,"

India's fiscal problems include large outstanding debt and a deficit that has widened over the past two years. The budget aims to bring India's growth level back to 9% growth and addresses wealth distribution issues for low-income groups, particularly in rural areas, at the same as trying to reduce fiscal deficits.

The central government plans to reduce the size of its fiscal deficits for 2010-2011 to 5.5% from a revised estimate of 6.7% in 2009-2010. On the revenue side, partly because of the planned introduction of the nation-wide goods and service tax (GST) in the near future, there is no significant change in tax. However, the budget does include increases in some indirect tax rates, which were reduced to boost domestic demand in previous budgets. On the expenditure front, the budget includes an increase in capital spending in areas such as infrastructure investments, and gradual increases in the social security sector.

Prior to the budget speech, the government had changed its fertiliser policy to implement a nutrient-based pricing policy and will raise urea prices by 10% from April 2010. This should reduce the total size of fertilizer subsidies, which amounted to almost India rupee 1 trillion--including the issue of fertilizer bonds--in fiscal 2008-2009, or 45% of total government subsidies. However, S&P's believes further changes to the system of food and domestic fuel subsidies could improve the structure of expenditures and prevent future increases in the size of subsidies.

In S&P's view, India's fiscal consolidation will occur at a moderate pace. In a report tabled to parliament on 25 February 25 2009, the 13th Finance Commission recommended that the government take "a calibrated exit strategy from the expansionary fiscal stance of 2008-2009 and 2009-2010." The commission proposes a general government debt target of 68% of GDP in 2014-2015 from an estimated 79% in 2009-2010. It also proposed to bring down the general government fiscal deficit to 5.4% in fiscal 2014-2015 from an estimated 9.5% in fiscal 2009-2010. Based on this recommendation, the announced budget for 2010-2011 included a rolling target for the central government deficit, at 4.8% for 2011-2012 and 4.1% 2012-2013.

In S&P's view, one of the critical factors for India's fiscal consolidation will be the timing and the details regarding the implementation of the nation-wide GST system. And it said a successful implementation of the GST could pave the way for a structural improvement in budget revenues.

The report also described non-Minibonds agreements reached with two banks to repurchase Lehman Equity Index-linked Principal Protected Notes at 80% of the principal investment from over 500 customers who had bought such notes on or after 5 August 2008.

Other successful enforcement actions are also highlighted including jail terms of 26 to 30 months for four individuals who conspired to manipulate the share price of Asia Standard Hotel Group. This was the largest market manipulation case locally to date and the first indictable prosecution for this kind of offence under the Securities and Futures Ordinance (SFO).

• The report came out at the same time as the Financial Services Authority(FSA) in the UK revealed it was still conducting enforcement action over the sale of Lehmans Minibonds.


• The FSA confirmed it had fined a national financial advice firm £700,000 for failings relating to Lehman-backed structured product sales

The firm, RSM Tenon Financial Services Limited (Tenon), was fined for "significant failings in its advice and sales processes relating to Lehman-backed structured products, and for having poor systems and controls to prevent unsuitable advice in its structured product and pension switching business."

This is the first enforcement action resulting from the FSA's review of the marketing and distribution of structured products, particularly those backed by Lehman Brothers, concluded in October 2009. The FSA found that, in relation to its sales of Lehman-backed structured products between November 2007 and August 2008, Tenon failed to treat some of its customers fairly.

Margaret Cole, director of enforcement and financial crime at the FSA, said: "This is the first action we have taken for advice failings relating to Lehman-backed structured products following our recent review, and we acted swiftly and decisively in order to return money to investors as quickly as possible. We will continue to take tough action where we find evidence that firms are giving unsuitable advice to investors."

The six ETFs, which have been launched under Deutsche Bank's db x-trackers brand, are among the most successful in terms of assets under management of the 120 ETFs that db xtrackers provides in Europe.

Marco Montanari, head of db x-trackers ETFs, Asia, said: "Together with the six new ETFs, db x-trackers now has a total of 13 ETFs listed on SEHK, making Deutsche Bank the largest issuer of ETFs in Hong Kong in terms of product offerings."

The six products are:

db x-trackers MSCI World TRN Index ETF
db x-trackers MSCI Pacific ex Japan TRN
db x-trackers MSCI EM Asia TRN Index ETF
db x-trackers MSCI Emerging Markets TRN
db x-trackers MSCI Russia Capped Index ETF
db x-trackers MSCI Brazil TRN Index ETF

The db x-trackers Emerging Markets TRN Index ETF is the biggest db x-trackers ETF
with more than US$3.4bn in assets under management globally as of 19 February 2010.

With the db x-trackers MSCI Russia Capped Index ETF, Deutsche Bank completes its BRIC offering covering the four major emerging countries of Brazil, Russia, India and China.

Deutsche Bank has both ETF manufacturing capabilities as well as trading and market-makingcapabilities.

"All our ETFs benefit from the liquidity provided by the market-making commitment of Deutsche Bank," added Montanari. "In addition db x-trackers ETFs represent a tax-efficient option for Asian investors as they are domiciled in Luxemburg, whereas Asian investors who invest in other off-shore ETFs domiciled in the US may be taxed up to 30% on their dividends."

The system will integrate into bank's existing infrastructure and will automate the entire life cycle for equity linked structures, starting from product publishing, order aggregation, customer correspondence, post trade event management all the way to redemptions and maturities.

The agreement means the bank and its subsidiary China Construction Bank (Asia) Finance will deploy the FinIQ System for managing its structured products business. The modules CCB (Asia) is initially deploying are focused around equity-based structures. As the business expands, other structures will also be supported.

Michael Leung, senior vice president & chief information officer at CCB (Asia), said: "CCB (Asia) is empowering its branches to trade structured products within the retail customer base and this would not have been practical without the FinIQ System,
"With ever-changing product structures and our scaling up of structured products distribution, it is important that we protect our customer interests. This can only be done if all the correct checks, events, triggers and controls are automated, and we believe this is when FinIQ comes into place and handles all for us. Going forward, our branches and our operations department will be provided with real-time information of pricing terms and the status of post trade events thus minimising errors and increasing productivity."

On 24 February 2010, John Tsang, Hong Kong's financial secretary, said he wanted to reinforce the SAR's position as a financial centre and promote the asset management business. The first proposal on his list of measures was to extend the stamp duty concession on ETFs to include all those that track indices comprising not more than 40% of Hong Kong's stocks. Prior to this ETFs with Hong Kong stocks in their portfolios, regardless of the weightings, are not entitled to this concession. However, out of 50 ETFs currently listed in Hong Kong the concession will affect less than five.

Joseph Ho, head of ETF marketing and sales for Lyxor ETF, said only a quarter of Hong Kong listed ETFs currently paid stamp duty and so the vast majority were already exempt before the Budget announcement. He added: "Investors in cross-listed ETFs, like Lyxor ETF, have never had to pay any stamp duty as they don't involve Hong Kong-based assets - they invest in places such as India or Korea etc but not Hong Kong."

One of the few to benefit directly from the concession is iShares, although it was unable to confirm how many of its products would be affected as it was still trying to confirm the final details. Nick Good, managing director of BlackRock and head of iShares, Asia Pacific, said: "It is something we have felt for a long time would be a positive step to enhance the competitiveness of Hong Kong as one of the major ETF hubs in Asia. We have seen it implemented in other jurisdictions already, and we think it will help both the attractiveness of new products that use Hong Kong underlyings and the liquidity of products."

Ho agreed it was useful insofar as the amount of Hong Kong content within domestically domiciled ETFs that triggers stamp duty charges has been clarified. However, he said he believed stamp duty charges were not a key factor for investors when choosing an ETF, and that investors will choose an ETF because they like the market it follows.

"To the retail investors, it is like the Government trying to support the Hong Kong film industry and offering people a discount of 10 cents to go and see a movie which costs $80 per ticket," he said. "It may be a nice gesture, but no-one is going to go and see a movie because of that. The stamp duty wavier is more beneficial to the proprietary traders and market makers so if the intention of the Government is to help the ETF industry, the waiver should be extended to all ETFs."

However, Ronald Arculli, chairman of the Hong Kong Stock Exchange, said the budget proposals related to financial services would help reduce trading costs of some of the products listed on the Exchange and help Hong Kong maintain its position as a leading international financial centre. He added: "Extending the waiver of stamp duty on the trading of Exchange Traded Funds (ETFs) with no Hong Kong stocks in their portfolios to include ETFs that track indices comprising not more than 40% of Hong Kong stocks will encourage the further development and diversification of our ETF market."

Innovative Investor - What is Pricing Partners? Who uses your services and why?

Xavier Deschamps - Pricing Partners is a fast growing international firm that provides structured product and derivatives pricing as well as risk analytic tools along with an independent revaluation service on vanilla to the most complex derivatives products.

Founded in 2005 by a team of former trading floor industry professionals with experience in some of the most prestigious investment banks, Pricing Partners has become a major player in both pricing models and independent valuation of complex financial products. Its solutions cover all major assets classes (interest rates, fixed income, equity, inflation, credit, foreign exchange, commodities, variable annuities and hybrid products).

Innovative Investor - Who are your typical clients?

Xavier Deschamps - The solutions can be used by investment banks, asset management firms, hedge funds, corporations, pension funds, fund administrators and audit firms. Pricing Partners masters the chain of valuation and develops its own pricing library and valuation platform. Its intrinsic knowledge and understanding of the pricing methodologies/models enable its clients to get very accurate and reliable valuation on their derivatives books.

Innovative Investor - Having signed a distribution agreement in Hong Kong, why did you choose to open your new regional office in Singapore at this time?

Xavier Deschamps - Being implemented as part of our 2010 Asian strategy, we've initially tied up a distribution partnership with a company based in Hong Kong. As Singapore and Hong Kong look to us the main financial centres in Asia, we have decided to open Pricing Partners office in Singapore in order to have a second location and provide permanent local support.

Innovative Investor - What is the intention of the launch and which Asian markets are you targeting in particular?

Xavier Deschamps Pricing Partners intents to launch Price-it Library and Price-it Online solutions to provide accurate and transparent pricing and valuation on derivatives products. We intent to focus on the main two financial hubs, Hong Kong and Singapore along with other emerging markets like India and China.

Innovative Investor - Rosh K Rai has recently joined Pricing Partners as senior sales manager to launch your Asian operation through a new office in Singapore. When did he join and what is his background?

Xavier Deschamps - Rosh has been with Pricing Partners for just over a month now as a senior sales manager. Prior to working with Pricing Partners, he worked for a leading derivatives solution firm and Thomson Reuters Financial in both Hong Kong and Singapore where he developed the business throughout the Asia Pacific region. We are currently looking for a new resource for the Asian team that will take care of valuation and consulting services.

Innovative Investor - What are the main issues as you see it for firms in Asia in 2010 as regards derivatives and structured products?

Xavier Deschamps - Accuracy and transparency on local derivatives.

Innovative Investor - How does Price-it Online work? And how can it describe the complexity of any structured product?

Xavier Deschamps - Price-it Online is an innovative Internet based independent valuation service. This platform has the same product coverage and functionality as Price-it Library and makes independent valuation a very simple process. It provides a high degree of transparency with the details of the computation through the full audit of the valuation process, modeling choices, calibrated model parameters, product cash flows and visualization of market data. Clients provide their termsheets and receive in return regular valuation with customised reports.

Clients can easily connect to the valuation website with a login and password and audit the valuation, with all details about the trade description, modelling choice and market data used. They can also download archived valuation reports on different formats or search for an historical price. Portfolio set up can be done alternatively by the client or by the Pricing Partners valuation team.