Traditional and exotic derivative warrants are the focus of a new educational article by Dr. Billy Mak, Assistant Professor in the Department of Finance and Decision Sciences at the School of Business of Hong Kong Baptist University, and Mr. Kevin Cheng, Vice President, Education and Training in Hong Kong Exchanges and Clearing Limited's (HKEx) Exchange Business Unit.

The article provides an overview of HKEx's warrant market and explains derivative warrants, exotic derivative warrants and the obligations of Liquidity Providers for the derivative warrants listed on The Stock Exchange of Hong Kong, which is a wholly-owned subsidiary of HKEx.  The authors also discuss some of the advantages of trading warrants and points investors should note when trading them.  They explain that the features of traditional warrants and exotic warrants are different so investors should fully understand both groups to avoid misperceptions about the potential risks and rewards associated with each group.

The article includes charts highlighting key statistics from the Stock Exchange's derivative warrant market, which was the world's most active derivative warrant market in the first five months of this year.  There is also a guide to the codes used to identify warrants traded on the Exchange and a table outlining some of the important features of exotic derivative warrants.

The authors note in their conclusion that derivative warrants have different features so it is very important for investors to have a thorough understanding of any derivative warrant series they wish to invest in.

"Derivative Warrants as an Investment Tool" is the latest in a series of educational articles aimed at enhancing public understanding of the cash and derivatives markets and the important role they play in Hong Kong.

The article is available on the HKEx website - www.hkex.com.hk - in the Library section, under the Reports of the Derivatives Market.  Past educational articles are also available on the website.