HSBC has begun shifting billions of dollars worth of derivatives trades from London to Hong Kong to take advantage of the city’s favorable funding and regulatory environment, and to help position itself for a potential relocation of its headquarters, sources with direct knowledge of the bank’s trading arrangements said.

    The development comes as a slew of regulatory changes brought in after the 2008 financial crisis make it increasingly expensive for banks to trade derivatives in the United States and Europe. Booking trades outside Britain would potentially help reduce HSBC’s exposure to the country’s bank levy, one of the sources said.

    The British lender, which is exploring whether to relocate its headquarters out of London, has begun moving interest rate swaps booked in Britain over to its Hong Kong subsidiary, three people with direct knowledge of HSBC’s trading books said.

    Interest rate swaps, which allow investors and companies to hedge their exposure to interest rate changes, comprise the bulk of the global over-the-counter derivatives market, with a notional value of around US$500 trillion, according to the Bank for International Settlements.

    Large swap dealers like HSBC typically hold hundreds of billions of dollars worth of such trades on their balance sheet.

    “Our approach to booking derivatives transactions is driven by a number of factors, including client needs and the type of contract,” a Hong Kong-based spokesman for HSBC said in response to questions on the matter.

    Global banks have typically held the majority of Asia-related derivatives trades on their European balance sheets, with London being a major booking centre for such deals. (SD-Agencies)