Derivative Warrants

4.      

What is a derivative warrant?

Derivative warrants fall under the category of derivative investment instruments. They have a minimum life of six months from  the date of issue or grant and a maximum life of five years.  The underlying assets of derivative warrants can be ordinary shares, market indices, foreign currencies or a basket of  shares. The issuer of derivative warrants may not be the issuer of the underlying assets, but should hold or have a right to hold the underlying assets. On exercising the derivative warrants, investors may receive the underlying assets or an equivalent amount of cash. The issue and exercise of derivative warrants has no effect on the quantity of the underlying assets (such as ordinary shares). They provide the market with instruments which may be used for hedging or investment purposes.

For more information about derivative warrants, please refer to Securities Market - Derivative Warrants under Product on the HKEx website.

5.

How to get quick information from the short name of a derivative warrant?

In general, the stock short name indicates some of the basic features of the derivative warrant:

No special character or note will be specified for American-style derivative warrants.

What are the differences between an exotic derivative warrant and a standard derivative warrant?

There are various types of derivative warrants in the market and some of them carry exotic features that are more complicated than others.   An exotic derivative warrant is identified  with an "x" in its short name.  The most common types are:

How can investors get information about derivative warrants listed on the Stock Exchange?

The price of derivative warrants is displayed on the Exchange's information system and published  by most  information vendors through their terminals/websites.  Other information such as listed issuers’ announcements and listing documents are available at the HKEx website.  Investors may refer to the Securities Market - Derivative Warrant Resource Centre under Product on the HKEx website for further details. 

If investors hold derivative warrants which are about to expire, can they sell them on the expiry day?

No. The expiry day of a derivative warrant is not the same as the last trading day. To ensure that a trade executed on the last trading day has sufficient time for settlement and any registration, there shall be 3 settlement days between the last trading day and the expiry day. Investors can only trade the derivative warrant on or before the last trading day. For example, if a derivative warrant expires on Friday, 23 June, the last day of trading will be Monday, 19 June (assuming all are settlement days).  In general, a trading day will also be a settlement day, except that Christmas Eve, New Year’s Eve and Lunar New Year’s Eve will normally be prescribed by the Exchange as non-settlement days. 

 

9.

How can investors contact liquidity providers to ask for quote requests?

Investors may contact their brokers directly to request a quote from liquidity providers.

How to get more information on the obligations of liquidity providers (LP) for quote requests?

Listing documents show the exact obligations of LP.  In normal circumstances, they  should provide liquidity for derivative warrant issues by continuous quotes or quote requests from five minutes after the market has opened until it closes.  The LP should provide liquidity for at least 10 board lots of a derivative warrant.  An issuer must specify the maximum spread between its bid and offer prices in the listing document. 

Under the quote request system, LP provide bid/ask prices only upon receiving quote requests.  A telephone number that brokers can call for quote requests on behalf of the investors is displayed on the derivative warrant's stock page and in the listing document. The response time for each quote request should also be specified in the listing document.  If the quote provided by the LP is not acceptable, a broker can act on behalf of a client and input the client's buy or sell order into the trading system.

Under continuous quotes, LP post bids and offers for an issue continuously on AMS/3. 

The circumstance under which liquidity will and will not be provided are set out in the derivative warrant issue's listing document.  Investors should contact their brokers if they are not satisfied with the quote of liquidity providers.