Quote Request

Quote request is one of the methods in which liquidity is provided. It refers to the provision of liquidity by entering orders into the Exchange’s trading system in response to an investor’s request.

The Industry Principles set out the tightened liquidity standards to be adopted by each issuer in its listing documents. Quote request standards are the minimum service level for all derivative warrants applicable to all possible market conditions (regardless of the underlying assets), subject to certain exemptions set out in the listing documents.

The following table summarises the current service levels.

When a liquidity provider responds to your quote request, it must continue to hold a quotation (which effectively means it must continue to make available an offer to trade for investors) for at least 5 minutes after it is posted on the Exchange’s trading system upon your request. This means that you can accept the quote (that is, agree to trade on that basis) within such 5 minutes, if it has not lapsed (see below).

However, it is important to be aware that even within those 5 minutes, the liquidity provider may need to adjust the bid and ask prices to take into account prevailing market conditions and changes in the price of the underlying asset. If that occurs, the liquidity provider will “refresh its quote” – that is, an adjusted quote will be posted on the Exchange’s trading system.

More importantly, if a liquidity provider’s quote is being traded by another investor within the 5 minute holding time and the quotation lapses, you need to submit another quote request if you wish to trade.

The liquidity provider is not obliged to provide quote upon request in the following key situations:

(a)  during a pre-opening session or a closing auction session (if applicable);

(b)  during the first 5 minutes of each morning session or the first 5 minutes after trading commences for the first time on a trading day;

(c)  when the derivative warrant or any underlying asset is suspended from trading for any reason;

(d)  when there is no derivative warrant available for market making activities;

(e)  if the theoretical value of the derivative warrant is less than HK$0.01;

(f)  where the underlying asset is an index, if there occurs or exists any suspension of, or limitation imposed on, trading of options or futures contracts relating to the index or if the index level is not calculated or published as scheduled for any reason;

(g)  when there are operational and technical problems beyond the control of the liquidity provider that hinder the liquidity provider’s ability to provide liquidity; or

(h)  if there is a “fast market” which materially affects the issuer’s hedging ability.

These circumstances are stated in the relevant listing documents. 

If trading in the underlying asset of a derivative warrant is suspended, trading in such  derivative warrant will also be suspended until trading in the underlying asset resumes. Investors must understand and take into account the risks arising from a loss of time value during a suspension period.

“Fast market” refers to situations where the financial markets experience exceptional price movements and high volatility over relatively short periods of time, which can result in a sudden increase in risk and uncertainty, possibly affecting issuers’ hedging abilities.

For example, these situations may include:

(a)  financial uncertainty - exceptionally volatile market conditions linked to financial uncertainty, for example, the period following Lehman Brothers’ bankruptcy in September 2008 and the “flash crash” of 6 May 2010, when the Dow Jones Industrial Average suffered its worst intra-day point loss; and

(b)  underlying uncertainty - the occurrence of events causing the intraday market price of the underlying stock or index to experience significant fluctuations and/or a material reduction in liquidity of the underlying, for example, Japan’s earthquake on 11 March 2011 which resulted in a drastic fall in Nikkei index in the immediately following period and fluctuation in prices of the related derivative warrants.

These are just possible examples of fast market events. Depending on circumstances, some market events may trigger a VCM which may possibly result in a fast market.

It is generally more difficult to provide quotes momentarily when the price of the underlying asset is changing rapidly within a short period of time.

System difficulties and failures can affect the ability of a liquidity provider to provide quotes within the service level set out in relevant listing documents or provide any quote at all.

A system failure will be notified to the market as soon as practicable and shall be fixed within the shortest possible time.

The issuer will commit to Quote Request obligations during the day, including during the cooling off period, unless an exemption is obtained for Quote Request if there is a “fast market” which materially affects the issuer’s hedging ability.