| Frequently Asked Questions |
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| General Features |
| Q1: How are derivative warrant holders different from shareholders? |
| Q2: What is the difference between historical volatility and implied volatility? |
| Q3: What are the differences between an exotic derivative warrant and a standard derivative warrant? |
| Q4: Is turnover an indication of the attractiveness of a derivative warrant? |
| Q5: How can an investor get quick information from the English short name of a derivative warrant? |
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| Trading Arrangements |
| Q6: How are derivative warrants traded on the Exchange? |
| Q7: What transaction fees are payable on buying or selling derivative warrants? |
| Q8: When and how is a cash-settled derivative warrant exercised? |
| Q9: What happens when a physical-settled derivative warrant is exercised? |
| Q10: Can derivative warrants be sold on the expiry day? |
| Q11: How can investors get information about derivative warrants listed on the Exchange? |
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| Liquidity Provision |
| Q12: How can investors contact Liquidity Providers to request quotes? |
| Q13: What are the obligations of a Liquidity Provider? |
| Q14: Why are there sometimes no quotations for some derivative warrants? |
| Q15: How can an investor find the name of the Liquidity Provider appointed by an issuer? |
| Q16: How many Liquidity Providers can an issuer appoint for each derivative warrant issue? |
| Q17: How can an investor request prices from an Liquidity Provider? |
| Q18: Under what circumstances is the Liquidity Provider not required to provide liquidity? |
| Q19: If the appointed Liquidity Provider is no longer a Stock Exchange Participant, can that Liquidity Provider continue to provide liquidity? |
| Q20: Is an issuer required to appoint another Liquidity Provider if the existing Liquidity Provider is disqualified? |
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| Q1: How are derivative warrant holders different from shareholders? |
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| A1: Derivative warrant holders do not have the same rights as shareholders of the underlying
stock. Derivative warrant holders do not have voting rights or the right to receive any
dividends or bonus distributions from the listed companies. The life of a derivative warrant
is finite and derivative warrant holders must sell or exercise the derivative warrant before it
expires and becomes worthless; whereas shareholders can hold shares for long term investment. |
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| Q2: What is the difference between historical volatility and implied volatility? |
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| A2: Volatility is an annualised statistic measuring price changes: the greater the fluctuations,
the higher the volatility. Historical volatility is a measure of fluctuations in price over a
past period. Implied volatility is the level of volatility over the term of a derivative warrant’s
life as reflected by the price of the derivative warrant, and is derived by using a theoretical pricing model. |
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| Q3: What are the differences between an exotic derivative warrant and a standard derivative warrant? |
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| A3: There are various types of derivative warrants in the market and some of them carry exotic features
that make them more complicated than others. An exotic derivative warrant is identified with an "X" in
its English short name. Investors should refer to the listing documents for details of the exotic warrants. |
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| Q4: Is turnover an indication of the attractiveness of a derivative warrant? |
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| A4: High turnover should not be regarded as an indication that the derivative warrant price will go up. The
price of a derivative warrant is affected by a number of fundamental factors in addition to market forces, such
as the price of the underlying assets, the volatility of the price of the underlying assets, the time remaining
to expiry, interest rates and the expected dividend on the underlying assets. |
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Q5: How can an investor get
quick information from the
English short name of a
derivative warrant? |
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| A5:
In general, the English
short name indicates some of
the basic features of the
derivative warrant:
Example: KK-HSI@EP0608A
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Issuer |
Asset |
Settlement(i) |
Style(ii) |
Call/Put(iii) |
Expiring Month and Year |
Serial No.(iv) |
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KK |
HSI |
@ |
E |
P |
Aug 2006 |
A |
- @: Cash Settlement; *: Physical Delivery
- X: Exotic Warrant; E: European; R: Regional Warrants; Space: American
- C: Call; P: Put; Space: Non Call/Put
- Applicable if an issuer issues more than one warrants with the same underlying asset and expiry date. The warrant is distinguished by A, B, C... etc.
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| Q6:
How are derivative warrants
traded on the
Exchange? |
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| A6:
Derivative warrants are
traded on the Exchange
during trading hours in
board lot multiples (for
example one board lot or
1,000 derivative warrants)
settled on T+2 (T being the
transaction day). Investors may connect their brokers for placing orders. |
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| Q7:
What transaction fees are
payable on buying or selling
derivative warrants? |
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| A7:
Similar to the stock trading
arrangements, transaction
fees include brokerage
commission, transaction
levy, trading fee and
investor compensation levy
(suspended since December
2005). In general, derivative
warrants are cash settled
and are not subject to stamp
duty. |
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| Q8:
When and how is a
cash-settled derivative
warrant exercised? |
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| A8:
If a derivative warrant is
in-the-money on the expiry
day, cash-settled derivative
warrants are usually
automatically exercised,
paying the warrant holders a
positive cash settlement
amount according to the
terms and conditions in the
listing documents. |
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| Q9:
What happens when a
physical-settled derivative
warrant is exercised? |
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| A9:
Issuers settle either by
physical delivery of
documents of title
(including certificates in
the name of the warrant
holder or the holder’s
nominee), or by electronic
transfer through HKEx’s
Central Clearing and
Settlement System (CCASS)
to the warrant holder (or
the holder’s nominee) within
a specified period following
a valid exercise. |
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| Q10:
Can derivative warrants be
sold on the expiry day? |
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A10: 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. |
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| Q11:
How can investors get
information about derivative
warrants listed on the
Exchange? |
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| A11:
The price of derivative
warrants is displayed on the
Exchange's information
system and published by most
information vendors through
their terminals or websites.
Other information such as
listed issuers'
announcements and listing
documents are available at
the HKEx website. |
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| Q12:
How can investors contact
Liquidity Providers to
request quotes? |
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| A12:
An investor can request a
quote from an Liquidity
Provider if the listing
document says quotes are
provided upon request. For
derivative warrants with
Liquidity Providers that
respond to quote requests,
the telephone numbers of the
Liquidity Providers are
available on the derivative
warrants' stock pages, in
the listing document and on
the HKEx website. |
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| Q13:
What are the obligations of
a Liquidity Provider? |
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| A13:
The listing document lists
the exact obligations of the
Liquidity Provider. In
normal circumstances,
Liquidity Providers should
provide liquidity for
derivative warrant issues
through continuous quotes or
in response to quote
requests from five minutes
after the market has opened
until the market closes. The
Liquidity Provider should
provide liquidity for at
least a certain number of board lots of the
derivative warrant. An
issuer must specify the
maximum spread between the
bid and offer prices for its
derivative warrants and the
maximum response time in the
listing document. Under the
quote request system,
investors may request a
quote from the Liquidity
Provider. |
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| Q14:
Why are there sometimes no
quotations for some
derivative warrants? |
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| A14:
Some derivative warrants may
not be traded actively
compared with others and
hence there are no orders
from investors. When
derivative warrant issuers
have the Liquidity Provider
provide liquidity in
response to quote requests,
investors can request quotes
from the Liquidity Provider.
Also, when the issuer has
sold the entire approved
supply of the derivative
warrants, the issuer is no
longer required to quote ask
prices for that issue. There
are also some special
circumstances in which
Liquidity Provider are not
required to provide quotes.
These circumstances are
stated in the listing
documents of the derivative
warrants. |
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| Q15:
How can an investor find the
name of the Liquidity
Provider appointed by an
issuer? |
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| A15:
Investors can obtain the
information either by
visiting the HKEx website or by
referring to the listing
document. The HKEx website provides
useful information such as
announcements, listing
documents and Liquidity
Provider information. |
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| Q16:
How many Liquidity Providers
can an issuer appoint for
each derivative warrant
issue? |
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| A16:
For each derivative
warrant issue there can only
be one Liquidity Provider. |
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| Q17:
How can an investor request
prices from an Liquidity
Provider? |
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| A17:
Under the quote request
system, an investor can
request a quote from the
Liquidity Provider. The
telephone numbers of the
Liquidity Providers are
available on AMS/3’s
derivative warrant pages, in the listing documents or in HKEx website. |
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| Q18:
Under what circumstances is
the Liquidity Provider not
required to provide
liquidity? |
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| A18:
The circumstances in which
the Liquidity Provider is
not required to provide
liquidity are described in
the listing document.
Investors should refer to
the listing document for
details. |
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| Q19:
If the appointed Liquidity
Provider is no longer a
Stock Exchange Participant,
can that Liquidity Provider
continue to provide
liquidity? |
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| A19:
If the appointed Liquidity
Provider is no longer a
Stock Exchange Participant,
HKEx has the right to
prohibit the Liquidity
Provider from continuing in
that role. |
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| Q20:
Is an issuer required to
appoint another Liquidity
Provider if the existing
Liquidity Provider is
disqualified? |
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| A20:
If the derivative warrant
has not expired, the issuer
must appoint another
Liquidity Provider if the
existing Liquidity Provider
is disqualified. |
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