Retail investors, institutional investors and Exchange Participants' principal trading remained the three main pillars of Hong Kong Exchanges and Clearing Limited's (HKEx) derivatives market turnover with a high degree of participation from overseas investors, according to a 2003/04 survey by HKEx.

The Derivatives Market Transaction Survey 2003/04 revealed that the trading distribution by investor type in the HKEx's derivatives market was almost unchanged from 2002/03-- the three main pillars being retail investors (31 per cent in 2003/04), institutional investors (32 per cent) and Exchange Participants' principal trading (37 per cent).

Local investor trading and Exchange Participants' principal trading had almost equal shares, contributing 39 per cent and 37 per cent respectively of market turnover in 2003/04. The contribution from overseas investors (mainly institutions) was 24 per cent. Investors from UK and US were two major overseas investor groups, each contributing 26 per cent of total overseas investor trading in 2003/04. The aggregate contribution from Asian investors was 35 per cent of overseas investor trading in 2003/04, up from 30 per cent in 2002/03. The majority came from Singapore (20 per cent of overseas investor trading), followed by Mainland China (11 per cent).*

Pure trading remained the main transaction purpose of derivatives trading, accounting for 54 per cent of total market turnover in 2003/04 (vs 48 per cent in 2002/03). The proportion of turnover for hedging and arbitrage were 32 per cent and 14 per cent respectively (vs 42 per cent and 10 per cent in 2002/03).

For trading composition by product, the contribution from overseas institutional investors and local retail investors were equally significant to Hang Seng Index (HSI) Futures turnover (each about 37 per cent). Local retail trading was dominant in Mini-HSI Futures (79 per cent of product turnover), while institutional trading was significant in HSI Options (about 50 per cent of product turnover). Stock options turnover was dominated by Exchange Participants' principal trading (79 per cent). H-shares Index Futures, which were launched on 8 December 2003, had a trading composition by investor type similar to that of HSI Futures.

Online trading contributed 17 per cent of retail investor trading (or 5 per cent of total market turnover) in 2003/04, similar to the level in 2002/03.

The Derivatives Market Transaction Survey or a similar survey has been conducted annually since 1994 (by HKEx or the Hong Kong Futures Exchange, which is now a wholly-owned subsidiary of HKEx). This year's survey covered HSI Futures, HSI Options, Mini-HSI Futures, H-shares Index Futures and stock options. Their turnover accounted for over 99 per cent of the total turnover volume of the HKEx derivatives market during the study period (July 2003 - June 2004). The survey achieved an overall response rate of 94 per cent, and the respondents contributed 99 per cent of the total turnover volume during the study period.

The full report on the HKEx Derivatives Market Transaction Survey 2003/04 is available on the HKEx website (http://www.hkex.com.hk/eng/stat/research/research.htm).

*The survey's target respondents were Exchange Participants. Their responses stemmed from their own understanding of the origins of their clients. HKEx had no direct access to these clients, nor could it verify their identities.

One of the limitations of the survey is that Exchange Participants might not know the true origins of all their client orders. For instance, an Exchange Participant might classify transactions for a local institution as such when in fact the orders originated from overseas and were placed through that local institution, or vice versa. As a result, the findings may deviate somewhat from the true picture.

Figure 1. Distribution of market trading by investor type
(Jul 2003 - Jun 2004)

Figure 2. Distribution of overseas investor trading by origin
(Jul 2003 - Jun 2004)