Obligations of Liquidity Providers for Structured Products
Issuers are required to appoint Liquidity Providers (LPs) to provide liquidity for their listed structured products. For each structured product issue there can only be one LP. Each LP should have a code of 95XX or 96XX for identification. Market participants can visit Hong Kong Exchanges and Clearing Limited (HKEx)'s website for the list of LPs.
Listing documents show the obligations of LPs. In normal circumstances, LPs should provide liquidity for structured product issues by means of continuous quotes or quote request from five minutes after the market has opened until the market closes. The LP should provide liquidity for at least 10 board lots of a structured product. An issuer must specify the maximum spread between its bid and offer prices in the listing document. Under the quote request system, the response time for each quote request should also be specified in the listing document.
Under the quote request system, LPs would provide bid/ask prices only upon receiving quote requests. A telephone number that investors can call for quote requests via their brokers is displayed on the structured products' stock page and in the listing document.
Circumstances in which LPs are not required to provide liquidity
Since different LP obligations may apply for different structured products, investors should read the listing document before trading a structured product. Some circumstances in which LPs are not required to provide liquidity include:
- the pre-market opening session and the first five minutes after the market has opened;
- when trading in the security underlying a structured product is suspended;
- when an issuer has no structured product available for sale, the LP will only provide bid prices;
- when the theoretical value of a structured product is less than HK$0.01, the LP will normally not provide bid prices;
- when an issuer or LP experiences technical difficulties in its daily operations;
- when an issuer is not able to hedge its exposure; and
- during fast markets
Frequently Asked Questions
| 1. | How can an investor find the name of the LP appointed by an issuer?
Investors can obtain the information either by visiting the HKEx website on relevant structured products or by referring to the listing document. The special section on HKEx's website provides useful information on structured products such as announcements, listing documents and LP information.
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| 2. | How many LPs can an issuer appoint for each structured product issue?
An issuer may appoint different LPs for different structured product issues. However, for each structured product issue there can only be one LP.
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| 3. | What are the obligations of an LP?
The listing document lists the exact obligations of an LP. In normal circumstances, LPs should provide liquidity for structured product issue by means of continuous quotes or quote request from five minutes after the market has opened until the market closes. The LP should provide liquidity for at least 10 board lots of a structured product. An issuer must specify the maximum spread between its bid and offer prices in the listing document.
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| 4. | How can an investor request prices from an LP?
Under the quote request system, an investor may contact his/her brokers to request a quote from the LP.
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| 5. | Under what circumstances is the LP not required to provide liquidity?
The circumstances in which LP is not required to provide liquidity are described in the listing document. Investor should refer to the listing document for details. These circumstances include: - the pre-market opening session and the first five minutes after the market has opened;
- when the theoretical value of a structured product is less than HK$0.01, the LP will normally not provide bid prices;
- when trading in the security underlying a structured product is suspended;
- during fast markets;
- when an issuer or LP experiences technical difficulties in its daily operations;
- when an issuer is not able to hedge its exposure; and
- when an issuer has no structured product available for sale, the LP will only provide bid prices.
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| 6. | What action would HKEx take if an LP cannot fulfill its obligation?
According to the Rules of the Exchange, HKEx has absolute discretion at any time to prohibit any Exchange Participant from being appointed or acting as Structured Product LP on such terms and for such period as the Board shall think fit without giving any reason or notice.
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| 7. | If the appointed LP is no longer a Stock Exchange Participant, can the LP continue to provide liquidity?
If the appointed LP is no longer a Stock Exchange Participant, HKEx has the right to prohibit it from being appointed or from continuing to perform as an LP.
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| 8. | Is an issuer required to appoint another LP if the existing LP is disqualified?
If the structured product issue has not expired, the issuer must appoint another LP. |
