The percentage contribution by overseas investors to Hong Kong Exchanges and Clearing Limited's (HKEx) derivatives market turnover has increased for the second year. Exchange Participants' principal trading and trading by local retail investors remained the other two major pillars of the derivatives market, according to a recent survey by HKEx.

The Derivatives Market Transaction Survey 2002/03 revealed that the contribution of overseas investors (mainly institutions) to total contract volume increased to 25 per cent in 2002/03 from 20 per cent in 2001/02 and 14 per cent in 2000/01. Overseas investors' share of trading in each product under study except mini-HSI futures also rose. The largest overseas source was the United States (26 per cent of overseas investors' trading), followed by the United Kingdom (23 per cent). The aggregate contribution from Asian investors was 29 per cent of overseas investors' trading, mainly from Singapore.

Exchange Participants' principal trading contributed 37 per cent of total trading and local retail investors 29 per cent. The levels were similar to 2001/02.

Pure trading and hedging remained the major purposes of derivatives transactions, accounting for 48 per cent and 42 per cent respectively of total contract volume. The proportion of stock options trading for arbitrage was down from 15 per cent in 2001/02 to 7 per cent in 2002/03.

The survey found that online trading in derivatives grew significantly in the past year. Sixteen per cent of total retail turnover (or 5 per cent of total market turnover) in 2002/03 was online trading, an increase from 5 per cent (or 2 per cent of total market turnover) in 2001/02.

The annual Derivatives Market Transaction Survey has been conducted since 1994 (formerly by Hong Kong Futures Exchange on its market). This year's survey covered HSI futures and options, mini-HSI futures and stock options; these products constituted 99.5% of total market turnover by contract volume during the study period July 2002 to June 2003. Survey questionnaires were sent to 158 trading participants in HKEx's derivatives market. A response rate of 92 per cent was achieved; the respondents contributed 98 per cent of market turnover during the study period.

The full report on the HKEx Derivatives Market Transaction Survey 2002/03 is available on the HKEx website (www.hkex.com.hk/eng/newsconsul/hkexnews/2003/documents/DMTS03_E.pdf).