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HSI Volatility Index Futures

VHSI – the Volatility Benchmark for Hong Kong’s Stock Market

The HSI Volatility Index (VHSI) is an indicator of Hang Seng Index (HSI) volatility, and thus of the Hong Kong stock market. The VHSI is also seen as Hong Kong's premier barometer of investor sentiment.

VHSI Overview

The VHSI is a key measure of the market’s expectation of 30-day HSI volatility implicit in the prices of near-term and next-term HSI options traded on HKEx’s derivatives market. VHSI is an implied, or expected, volatility index and is quoted in percentage points. 

The VHSI is owned by Hang Seng Indexes Ltd and compiled according to the CBOE’s Volatility Index, or VIX, methodology, with adaptation to the Hong Kong stock market’s characteristics. The VHSI was launched on 21 February 2011.

Benefits of VHSI as a Volatility Benchmark

Volatility indexes enhance the pricing efficiency of options markets because investors can use them to compare derivatives pricing and estimate the implied volatility in options pricing.

Relationship between VHSI and HSI

A volatility index is commonly viewed as a useful gauge for changes in investor sentiment. Some professional investors treat volatility as an alternative asset class for investing.

 

VHSI Futures

HKEx’s VHSI futures are an innovative tool for investors to manage volatility risk in Hong Kong’s stock market. VHSI Futures provide a pure play on implied volatility independent of the direction and level of stock prices.

Trading Opportunities

Trade the direction of implied volatility
Trade implied volatility spreads
Hedge volatility risk of HSI options
Get volatility exposure for portfolio diversification
Arbitrage between HSI options and VHSI futures

Advantages of Trading VHSI Futures

Cost-effective way to manage volatility risk
Cost effective and leveraged way to manage volatility risk in relation to HSI based equity derivatives products.

No requirement to delta hedge
Convenient and cost effective exposure to investors who can implement volatility trading strategies without the need to adjust positions for underlying market delta movements.

Continuous Liquidity by market makers
Market makers will provide continuous two-sided markets throughout the trading day to facilitate trading liquidity.

Reduced counterparty risk
Counterparty risk can be reduced with HKFE Clearing Corporation Limited, an HKEx subsidiary, acting as central counterparty to every trade.

 

Note:
HSI Volatility Index (the “Index”) is published by Hang Seng Indexes Company Limited (“HSIL”), which has contracted with Standard & Poor’s Financial Services LLC (“S&P”) to maintain and calculate the Index. "Standard & Poor's" and “S&P” are trademarks of S&P and have been licensed for use by HSIL. “VIX®” is a trademark of Chicago Board Options Exchange, Incorporated (“CBOE”) and S&P has granted a license to HSIL, with permission from CBOE, to use such mark for purposes relating to the Index. The Index is not owned, sponsored, endorsed or promoted by S&P or CBOE and neither S&P nor CBOE makes any representation regarding the advisability of investing in products that are based on such Index or otherwise relying on such Index for any purposes and neither S&P, CBOE nor HSIL shall have any liability for any errors or omissions in the Index or any values thereof.

 


Updated 20 Oct 2017


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Contract Summary

Item Contract Terms
Underlying Index HSI Volatility Index  
HKATS Code VHS  
Contract Multiplier HK$ 5,000 per index point   
Minimum Fluctuation  0.05 index point (or HK$ 250)  
Contract Months  Spot month and the next two calendar months  
Trading Hours 9:30 am - 12:00 noon & 1:00 pm - 4:30 pm
(Expiring contract month closes at 4:00 pm on the Last Trading Day)
There is no afternoon trading session on the eves of Christmas, New Year and Lunar New Year.
Last Trading Day  30 calendar days prior to the second last Business Day of the next month  
Final Settlement Price The average of quotation of VHSI taken at 1 minute intervals between 3:30pm and up to 4:00pm on the Last Trading Day
(i.e.  the average of 30 readings)
 
Transaction Costs Exchange Fee                      HK$10.00
Commission
Levy                  HK$0.54                     
Commission
Rate                  Negotiable

Please visit “Rules, Regulations and Procedures of the Futures Exchange” of “Trading Rules” under “Rules and Regulations” of the HKEx website for full contract specifications.

Note:
HSI Volatility Index (the “Index”) is published by Hang Seng Indexes Company Limited (“HSIL”), which has contracted with Standard & Poor’s Financial Services LLC (“S&P”) to maintain and calculate the Index. "Standard & Poor's" and “S&P” are trademarks of S&P and have been licensed for use by HSIL. “VIX®” is a trademark of Chicago Board Options Exchange, Incorporated (“CBOE”) and S&P has granted a license to HSIL, with permission from CBOE, to use such mark for purposes relating to the Index. The Index is not owned, sponsored, endorsed or promoted by S&P or CBOE and neither S&P nor CBOE makes any representation regarding the advisability of investing in products that are based on such Index or otherwise relying on such Index for any purposes and neither S&P, CBOE nor HSIL shall have any liability for any errors or omissions in the Index or any values thereof.



Margin Table

Trading Fees and Commission

Exchange Fee
HK$10.00 per contract per side
Commission Levy
HK$0.54 per contract per side
Investor Compensation Levy*
HK$0.00 per contract per side
Total
HK$10.54 per contract per side
Commission
Negotiable
* The amount indicated above is subject to change from time to time.

List of Market Makers or Liquidity Providers

Equity Index Products

There are liquidity provider and 3 types of market makers in the equity index products market:

- Primary Market Maker (PMM); and

- Market maker providing continuous quotes (CQMM); and

- Market maker responding to quote request (QRMM). 

 

Below is the list of Liquidity Provider, PMM, CQMM and QRMM:

 
 
Market Makers / Liquidity Providers
 APC BNP CFT CTD HKF IBG IMC ISS LQC MPF NHT NRA OPT SGS  TBR YKR
Hang Seng Index Options   *   P * * * * * P P P * * *
Mini-Hang Seng Index Options       * * * * * * * * * *   *
Hang Seng China Enterprises Index Options    *   P * * *   * P P P * * *
Mini-Hang Seng China Enterprises Index Options        *     * *     * *   *   *
HSI Dividend Point Index Futures   *                            
HSCEI Dividend Point Index Futures √  *                              
CES China 120 Index Futures            L     L          L
Sector Index Futures - CES Gaming Top 10 Index Futures                   L            
Sector Index Futures - Hang Seng  IT Hardware Index Futures 
                   L            
Sector Index Futures - Hang Seng Mainland Banks Index Futures      L     L L     L     L   L L
Sector Index Futures - Hang Seng Mainland Healthcare Index Futures                   L            
Sector Index Futures - Hang Seng Mainland Oil & Gas Index Futures           L L     L     L   L L
Sector Index Futures - Hang Seng Mainland Properties Index Futures             L     L     L      
Sector Index Futures - Hang Seng Software & Service Index Futures                    L            

L - Denotes Liquidity Provider
P - Denotes PMM
* - Denotes CQMM
√ - Denotes QRMM

Market Making Liquidity providing obligations and Incentives

Introduction

HKEX’s derivatives market has both Market Maker (MM) Program and / or Liquidity Provider (LP) Program for different derivatives products.  The MM obligations and MM incentives under the MM Program for futures contracts and index options contracts are set out in the HKFE Rules.  The MM obligations and MM incentives under the MM Program for stock options contracts are set out in the Options Trading Rules of the Stock Exchange.  LP Program is a commercial arrangement for the Exchange to appoint LPs to provide liquidity for new products, which require more flexibility in terms of LP obligations and LP incentives and are not stipulated in the exchange rules and procedures. 

The derivatives products with MM Program and / or LP Program are as follows:

Product Type Contract MM Program LP Program
Futures Contracts Stock Index Futures HSI Volatility Index Futures
HSI Dividend Point Index Futures
HSCEI Dividend Point Index Futures
BRICS Futures
Sector Index Futures
CES China 120 Index Futures
Sector Index Futures
Stock Futures Single Stock Futures N/A
Currency Futures USD/CNH Futures EUR/CNH Futures
JPY/CNH Futures
AUD/CNH Futures
CNH/USD Futures
Interest Rate Futures 1-month HIBOR Futures
3-month HIBOR Futures
N/A
Commodity Futures N/A LME Mini Copper Futures
LME Mini Aluminum Futures
LME Mini Zinc Futures
LME Mini Nickel Futures
LME Mini Tin Futures
LME Mini Lead Futures
Option Contracts Stock Index Options Hang Seng Index Options
Mini Hang Seng Index Options
Hang Seng China Enterprises Index Options
Mini-Hang Seng China Enterprises Index Options
N/A
Stock Options Single Stock Options N/A
Currency Options N/A USD/CNH Options

Eligibility

Product Type MM LP
HKFE Futures Contracts and Option Contracts
  • HKFE Exchange Participant (EP), or
  • Corporate entity as client of EP must has an association to the EP and also must meet at least one of the requirements:
    i) be a regulated entity by the Securities and Futures Commission (SFC) to deal in securities or futures contracts, except as an introducing agent ; or licensed for similar activity by an overseas authority having a Memoradum of Understanding with SFC;
    Ii) be a licensed bank;
    Iii) have a credit rating of A- or above (S&P) or A3 or above (Moody’s); or
    iv) have a minimum paid-up capital of HK$50 mil. and minimum shareholder funds of HK$100 mil.
HKFE Exchange Participant or the client of the Exchange Participant
SEHK Stock Options Option Trading Exchange Participant N/A

For more details of the application procedures, please refer to the HKEX website at   http://www.hkex.com.hk/eng/market/hkex_part/criteria/otherapp/Table_Form_5.htm

LP and market making obligations and incentives

The following tables summarise the market making obligations and incentives in futures and options contracts:

HSI Volatility Index Futures  

Market Making Obligation                     Provision of
Continuous Quotes (CQ)
Response to
Quote Requests (QR)
Assigned Contract All contract months
(Spot month and the next two calendar months)
 
Trading Requirement Provision of CQ for not less than
70% of the trading hours in each calendar month
 
Response to not less than 70%
of the QR in each calendar month
Maximum Time Limit for Responding to QR
 
N/A Response to a QR within 20 seconds of the QR
Minimum Display Time Not fewer than 10 seconds, unless a change in the level of the underlying index occurs during the 10 seconds display period, in which case, market makers may change their quotes
 
Maximum Bid/Offer Spread
 
0.50 points or 5% of bid price,  whichever is higher 
Minimum Quote Size
 
Not fewer than 5 contracts

 

Market Maker (MM) Incentives for Stock Index Futures and Options

Product Market Maker
Fee (HK$)
Market Maker in Other Stock Index
Products with same underlying Index
Fee (HK$)*
Standard
Exchange
Fee (HK$)
Hang Seng Index Futures (HSIF) n.a. 3.50 (MM in HSIO, MHIF or MHIO) 10.00
Hang Seng Index Options (HSIO) 2.00 3.50 (MM in MHIF or MHIO) 10.00
Mini Hang Seng Index Futures (MHIF) n.a. 1.00 (MM in HSIO or MHIO) 3.50
Mini Hang Seng Index Options (MHIO) 0.40 0.70 (MM in HSIO or MHIF) 2.00
Hang Seng China Enterprises Index Futures (HHIF) n.a. 1.00 (MM in HHIO or MCHO) 3.50
Hang Seng China Enterprises Index Options (HHIO) 0.50 1.00 (MM in HHIFor MCHO) 3.50
Mini-Hang Seng China Enterprises Index Futures (MCHF) n.a. 0.70 (MM in HHIF or HHIO or MCHO) 2.00
Mini-Hang Seng China Enterprises Index Options (MCHO) 0.20 0.35 (MM in HHIF or HHIO) 1.00
HSI Dividend Futures 0.60 n.a. 3.00
HSCEI Dividend Futures 0.30 n.a. 1.50
HSI Volatility Index Futures 2.00 n.a. 10.00
Sector Index Futures 0.40 n.a. 2.00

* The number of contracts that are eligible for a reduced Exchange Fee may be limited as specified in the Trading Procedures relating to Stock Index Futures and Stock Index Options contained in the HKFE Rules

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