Yearender: More Financial Products Emerge in Hong Kong's Securities Market

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Last updated at: (Beijing Time) Sunday, December 29, 2002

Yearender: More Financial Products Emerge in Hong Kong's Securities Market

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A number of new financial products emerged in the securities market of Hong Kong in 2002, expanding the variation of the local securities and strengthening Hong Kong's position as an international financial center.

Despite the market difficulty in the year, the Hong Kong Exchange and Clearing Limited (HKEx) managed to introduce derivative warrants with liquidity providers under the revised Listing Rules, Dow Jones Industrial Average (DJIA) Futures, EquityLinked Instruments (ELI) and Mini-Hang Seng Index (HSI) Options.

Those newly introduced financial products in general received good response from investors.

According to the Derivatives Retail Investor Survey 2001/02 conducted by HKEx, most of the respondents agreed that clearing, settlement and trading of derivatives on HKEx were efficient and the HKEx derivatives market was an orderly market.

Latest statistics from HKEx indicate that from Jan. 1 to Dec. 13, 2002, 632 derivative warrants issued by 15 issuers recorded average daily turnover of 496 million HK dollars (63.6 million US dollars), representing 7.6 percent of main board turnover.

The Derivatives Market Transaction Survey 2001/02 reveals that the overall contribution of Exchange Participants' (EP) principal trading to HKEx's derivatives market turnover, measured in contract volume, increased from 33 percent in 2000/01 to 36 percent in 2001/02. The contribution of overseas agency trading increased from 17 percent in 2000/01 to 21 percent in 2001/02, with significant increases for the HSI products. Overseas agency trading came mainly from Asia, the United States and the United Kingdom.

In a step to enable investors to respond quickly to corporate announcement or other market events before or after regular US trading hours, HKEx introduced Dow Jones Industrial Average (DJIA)Futures for trading on Hong Kong Futures Exchange in May.

Average daily turnover for Dow Jones Industrial Average Futuressince launch was 42 contracts.

To meet the demands of investors who want to earn a higher interest rate than the rate on an ordinary time deposit, and who want the opportunity to buy their favorite stock at a discount to the prevailing market price, HKEx introduced Equity Linked Instruments (ELI), which combines the features of a fixed income instrument and a stock option.

As of Dec.13, 25 ELI were listed on Stock Exchange of Hong Kongsince its launch in Aug.

Investors may choose from three different types of ELI -- Bull,Bear and Range -- depending on their views on the underlying securities.

For stock brokers, ELI can extend their product lines from warrants and equities to a product which has a lower price risk than equities due to its cap to return, providing a one-stop service that can meet more of the investment needs of many of their clients. To increase the participation of retail investors in the derivatives market, HKEx introduced Mini-HSI Options for trading on Nov. 18. The contract multiplier for Mini-HSI Options was 10 HKdollars per index point, one-fifth the contract multiplier for Hang Seng Index Options.

Mini-HSI Option provided an opportunity for more individual investor to participate in the local stock index options market, said HKEx deputy chief operating officer Lawrence Fok.

Mini-HSI Options are designed to meet the needs of individual investor and they will give market participants more choice, he added.

Trading volume for Mini-HSI Options was 171 contracts on the first trading day. HKEx officials said Mini-HSI Options were off to a good start and the Mini-HSI Options contract has good potential.

To familiarize the market with Mini-HSI Options, HKEx also arranged an education program, including seminars for investors and briefings for brokers and their professional associations.

Planning its next step in 2003, HKEx said it will explore more financial products and reviewing existing products, which include capital protection products in the securities market, interest rate swap future, cash settlement for Exchange Fund Note Futures, flexible options on Hong Kong stocks and indices which allow investors to set their strike prices.

HKEx also plans to launch HKEx/S&P index series in the first half of next year.

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