Hong Kong Exchanges and Clearing (HKEx) plans to realign its stock options market to meet growing market demand with new functionality to be introduced from 2 May.
The revamp is part of the bourse’s three-year plan and have been developed to increase market liquidity and benefit retail and institutional investors. HKEx says the changes will help market participants formulate investment strategies for achieving yields offered by some popular structured products.
“We are revamping our stock options to capture new opportunities created by regulatory changes that have increased demand for exchange-traded derivatives and central counterparty clearing,” said Romnesh Lamba, HKEx’s co-head of global markets. “With the measures, we believe we can increase our stock option market’s attractiveness to existing users of the OTC option-like instruments.”
The changes to stock options trading include trading fee reductions for 26 of the current stock option classes to $0.50 per contract for stock options with notional value of less than HK$10,000. According to HKEx, this will significantly reduce the transaction costs for 40% of the current stock option classes.
Moreover, from Q2 new primary market makers will provide liquidity in at least 120 series per option class, five times the quote requirement for existing market makers, all stock option classes will include a fourth serial expiry month, and the subscriber fee for real-time stock option prices will be waived for one year, which the exchange hopes will encourage members to include stock option prices on their websites or trading terminals.
“We expect this revamp to bring more liquidity and growth to our stock options market, which accounted for nearly half our derivatives market turnover last year,” said Calvin Tai, HKEx’s co-head of equities, fixed income and currency business. “Stock options are excellent wealth management tools that are often used to generate income when equity markets trade in a narrow range and to profit from price movement when shares trade in a broad range.”
In the first two months of this year, HKEx traded an average of 287,500 stock option contracts per day, according to figures from the World Federation of Exchanges.