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Primary Market Maker Program

There are three types of market makers in HKEX's options market:
- Primary Market Maker (PMM);
- Market maker providing continuous quotes (CQMM); and
- Market maker responding to quote request (QRMM).

PMM is available to Hang Seng Index (HSI) Options, Hang Seng China Enterprises Index (HHI) Options and selected stock options classes. PMM is required to provide continuous quotes (CQ) and also responds to quote requests (QR). A maximum of 5 PMM permits will be granted for each option product with applicants selected through bidding process. The selection is primarily based on the applicant's obligation commitment and past market making quality.

HSI and HHI Options PMM Program for the period of November 2016 and December 2017

HSI and HHI Options PMM is required to:

•       provide CQ in not less than 100 option series (See Table 1A for details); and

•       respond to at least 70% of QR issued for all short-dated expiry months (See Table 1B for details)

Obligations in terms of quote size, bid/ask spread and the percentage of trading hours to provide CQ are determined through bidding process. (See Table 1C).

For the list of HSI and HHI options PMM, please refer to:

http://www.hkex.com.hk/eng/prod/drprod/hkifo/RTlist_equityindex.htm

Obligations

Table 1A -  CQ Obligations

Assigned CQ series 100 series
CQ series selection pool:
Contract Month Moneyness Call Put
Spot month Nearest OTM 10 10
Nearest ITM 2 2
2nd calendar month Nearest OTM 10 10
Nearest ITM 2 2
3rd calendar month Nearest OTM 10 10
Nearest ITM 2 2
4th calendar month Nearest OTM 10 10
Nearest ITM 2 2
1st quarter Nearest OTM 10 10
Nearest ITM 2 2
2nd quarter Nearest OTM 10 10
Nearest ITM 2 2
3rd quarter Nearest OTM 10 10
Nearest ITM 2 2
Sub-total 84 84
Total 168
Min. Quote Size Determined by bidding (See Table 1C)
Max. Bid/Ask Spread
Min. Trading Hours

Table 1B -  QR Obligations

Min. Respond to QR Requirement 70% of QR
Min. Quote Size Determined by bidding (See Table 1C)
Max. Bid/Ask Spread
Max. Time Limit for Responding to QR 20 secs
Min. Display Time 20 secs

 Table 1C – Obligations determined by bidding (Level 1)

Level 1
Min Quote Size Spot, 2nd , 3rd, 4th calendar 3
1st, 2nd, 3rd quarter 1
Max Bid/ Ask Spread

(BUS = Best Underlying Spread)
Spot, 2nd, 3rd, 4th calendar 1-750 points Max (60 points, 20% of bid)
> 750 points 150 points
1st, 2nd  quarter 1-750 points Max (70 points, 30% of bid)
> 750 points 225 points
3rd quarter 1-750 points Max (80 points, 45% of bid)
> 750 points 340 points
Min. CQ Trading Hours 80%

  

Incentives

1.  Upon fulfillment of obligations, PMM will pay:

(i)   a discounted trading fee for each HSI Options and HHI Options contract traded by PMM:  

Product

Standard

CQMM

QRMM

PMM

HSI Options HK$ 10.00 HK$ 2.00
HHI Options HK$ 3.50 HK$ 0.50

(ii)  a discounted trading fee on transactions effected in other Stock Index Futures and Stock Index Options products with the  same underlying index, provided that the number of contracts that are eligible for a discounted trading fee in any calendar month should not exceed the volume of the HSI Options or HHI Options traded by the PMM in that calendar month (adjusted to equivalent contract size in the respective products). For details, please refer to the Chapter 3 of Trading Procedures for Stock Index Futures and Stock Index Options of the HKFE Rules.

2.   PMM may apply to the Exchange for a waiver of the monthly sub-license fee for up to 16 OMnet Application Programming Interface (OAPI) connections (i.e. $2,600 per month per connection or equivalent) to HKATS for HSI Options PMM and up to 8 OAPI connections to HKATS for HHI Options PMM.

3.   PMM may apply to the Exchange for additional throughput with mass quote (MQ) function and Market Maker Protection function:

Transaction per second (TPS) with MQ: 1 TPS with MQ for every 3 assigned CQ series
OAPI connection setting for TPS with MQ: PMM may select any combination of 5, 10, 20 or 50 TPS per OAPI connection with MQ
Market Maker Protection: Provided in respect of options in respect of which the PMM is acting in its capacity as such

 

Stock Options PMM Program for the period of 3 July 2017 to 29 June 2018

  Stock Options PMM is required to:

•       provide CQ in not less than 150 option series (See Table 2A for details); and

•       respond to at least 80% of QR issued for all expiry months (See Table 2B for details)

Obligations in terms of quote size, bid/ask spread and the percentage of trading hours to provide CQ are determined through bidding process. (See Table 2C).

For the list of stock options PMM, please refer to: 

http://www.hkex.com.hk/eng/prod/drprod/hkifo/RTlist_stockoptions.htm

Obligations 

Table 2A - CQ Obligations

Assigned CQ series 150 series
CQ series selection pool:
Contract Month Series Call Put
Spot month Nearest OTM 10 10
Nearest ITM 2 2
2nd Calendar month Nearest OTM 10 10
Nearest ITM 2 2
3rd Calendar month Nearest OTM 10 10
Nearest ITM 2 2
4th Calendar month Nearest OTM 10 10
Nearest ITM 2 2
1st Quarter month Nearest OTM 10 10
Nearest ITM 2 2
2nd Quarter month Nearest OTM 10 10
Nearest ITM 2 2
3rd Quarter month Nearest OTM 10 10
Nearest ITM 2 2
Sub-total 84 84
Total 168
Min Quote Size Determined by bidding (See Table 2C)
Max. bid/ask spread
Mini CQ on Trading hours

  Table 2B - QR Obligations

Min Respond to QR Requirement 80% of QR
Min Quote Size Determined by bidding (See Table 2C)
Max Bid/Ask Spread
Max Time Limit for Responding to QR 20 seconds
Min Display Time 20 seconds

Table 2C – Obligations determined by bidding (Level 1)

Underlying Stock Name SEHK Code HKATS Code Min Quote Size Spread Group (see table below) Min. CQ Trading Hours %
First 4 calendar months Next 3 quarter months
Agricultural Bank of China Limited * 1288 XAB 30 15 A 80%
AIA Group Limited 1299 AIA 30 15 A 80%
Bank of China Limited * 3988 XBC 30 15 A 80%
China Construction Bank Corporation * 939 XCC 30 15 A 80%
China Life Insurance Company Limited 2628 CLI 30 15 A 80%
China Mobile Limited 941 CHT 30 15 A 80%
China Petroleum & Chemical Corporation 386 CPC 30 15 A 80%
CNOOC Limited 883 CNC 30 15 A 80%
CSOP FTSE China A50 ETF 2822 CSA 30 15 A 80%
Galaxy Entertainment Group Limited 27 GLX 30 15 A 80%
Hong Kong Exchanges and Clearing Limited 388 HEX 30 15 B 80%
HSBC Holdings Plc. 5 HKB 30 15 A 80%
Industrial and Commercial Bank of China Limited * 1398 XIC 30 15 A 80%
iShares FTSE A50 China Index ETF 2823 A50 30 15 A 80%
PetroChina Company Limited 857 PEC 30 15 A 80%
Ping An Insurance (Group) Company of China, Ltd. 2318 PAI 30 15 A 80%
Sands China Ltd. 1928 SAN 30 15 A 80%
Tencent Holdings Limited 700 TCH 30 15 B 80%
*Option class with minimum price fluctuation of HK$0.001.

Table 2D – Maximum Bid/Offer Spread Obligation (Level 1 Obligation)

Spread Group Contract Month Max. Bid/Offer Spread
A Spot month 3 Business Days to expiry 20% of the bid price of the quote or 4 times the best underlying spread, whichever is the lower
≥ 4 Business Days to expiry 10% of the bid price of the quote or 4 times the best underlying spread, whichever is the lower
The next 3 calendar expiry months
The next 2 calendar quarter expiry months 20% of the bid price of the quote or 6 times the best underlying spread, whichever is the lower 
The 3rd calendar quarter expiry month 20% of the bid price of the quote or 12 times the best underlying spread, whichever is the lower 
B Spot month 3 Business Days to expiry 35% of the bid price of the quote or 9 times the best underlying spread, whichever is the lower
≥ 4 Business Days to expiry 20% of the bid price of the quote or 9 times the best underlying spread, whichever is the lower
The next 3 calendar expiry months
The next 2 calendar quarter expiry months 35% of the bid price of the quote or 12 times the best underlying spread, whichever is the lower 
The 3rd calendar quarter expiry month 45% of the bid price of the quote or 21 times the best underlying spread, whichever is the lower

Note: Notwithstanding the above, the Exchange may review the spread group (Group A or B) of each option class on
monthly basis to reflect the change in the market conditions.  

In addition,  for option classes with min. price fluctuation of HK$0.01, PMM will not be obliged to quote a spread narrower
than the followings: 

Spread Group Underlying Stock Price PMM Not Obliged to Quote Narrower than
A < $100 Best bid/offer spread of underlying security + 5 minimum price fluctuation
>= $100 Best bid/offer spread of underlying security + 10 minimum price fluctuation
B < $100 Best bid/offer spread of underlying security + 15 minimum price fluctuation
>= $100 Best bid/offer spread of underlying security + 30 minimum price fluctuation

 For option classes with minimum price fluctuation of HK$0.001, PMM will not be obliged to quote a spread narrower
than $0.03. 

In addition, PMM will not be obliged to quote for the bid side in response to a QR for a far out-of-the-money Contract
which has a value near zero.  A PMM shall remain obliged to quote for the sell side by issuing a sell limit order with
a limit price no greater than 10 and 30 minimum price fluctuations in option classes with minimum price fluctuations
of HK$0.01 and HK$0.001 respectively within the required response time and for the minimum required quantity and duration.
  

Incentives

 1.    Upon fulfillment of obligations, PMM will pay a discounted trading fee for each options contracts traded by PMM:

Stock Options Tier Standard CQMM / QRMM PMM
1 HK$3.00 HK$1.50 HK$1.20
2 HK$1.00 HK$0.80 HK$0.60
3 HK$0.50 HK$0.40 HK$0.30

2.  PMM may apply to the Exchange for a waiver of the monthly sub-license fee for up to 2 OAPI connections (i.e. $2,600 
     per month per connection or equivalent) to HKATS for each option class.

3.   PMM may apply to the Exchange for additional throughput with mass quote (MQ) function and Market Maker Protection
      function:

Transaction per second (TPS) with MQ: 1 TPS with MQ fo every 3 assigned CQ series
OAPI connection setting for TPS with MQ: PMM may select any combination of 5, 10, 20 or 50 TPS per OAPI connection with MQ
Market Maker Protection: Provided in respect of options in respect of which the PMM is acting in its capacity as such

4.  For each option class, PMM shall entitle to a wavier of one-off fee for applying for an increase in the Central Gateway throughput rate by one standard Central Gateway throttle rate.


Updated 30 Jun 2017

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