Derivative warrants market under watch: KC Chan

November 23, 2011

The derivative warrants and callable bull/bear contracts market does not give rise to any systemic risk concerns, Secretary for Financial Services & the Treasury Prof KC Chan says, adding the Securities & Futures Commission is closely monitoring the situation.
 
He told legislators today Hong Kong Exchanges & Clearing is conducting discussions and studies on ways to strengthen the regulatory regime.
 
At the end of October, the market value of derivative warrants and callable bull/bear contracts was $2.33 billion and $570 million.
 
The total hedging positions held by issuers of derivative warrants and callable bull/bear contracts in the underlying securities was estimated to represent about 2% of the average daily trading of underlying securities.
 
He said the combined share of derivative warrants and callable bull/bear contracts in total market trading has remained stable at a level of around 20% to 25% in recent years, and increased to 30% in October this year, partly due to the reduced turnover in the stock market.
 
Since the launch of callable bull/bear contracts in June 2006, the highest average daily turnover was about $39 billion in October 2007. The daily turnover ranged between $17 billion and $21 billion this year, except for May when it was $14 billion.
 
Prof Chan said Hong Kong Exchanges & Clearing requires the structured product issuers update the market through announcements about any changes to their credit ratings to ensure investors are trading on a fully informed basis. In light of the recent European debt crisis, the body has stepped up its monitoring measures on the change of issuers' credit ratings.