Hong Kong Exchanges and Clearing Limited (HKEx) announced today that adjusted position limits and reporting level for the stock options contracts traded in its derivatives market (please see table below) will take effect tomorrow (Friday).  The adjustments comply with the provisions of the Securities and Futures (Contracts Limits and Reportable Positions) (Amendment) (No 2) Rules 2005, which will take effect tomorrow.

 

Key changes:

	Gross Position Limits of 5,000 contracts per expiry month for Tier 1 option classes and 25,000 contracts per expiry month for Tier 2 option classes will no longer be applicable.
	A single position limit per option class of 50,000 open contracts in one market direction for all expiry months combined will replace the existing Net Position Limits in one market direction of 10,000 for Tier 1 and 30,000 contracts for Tier 2.  However, a lower limit of 30,000 open contracts in one market direction for all expiry months combined will be applied to the 11 option classes listed above.
	A single reporting level per option class of 1,000 open contracts per expiry month will replace the existing Tier 1 level of 1,000 and Tier 2 level of 5,000 contracts gross per expiry month.

 

Options Exchange Participants are required to report to HKEx each day any open positions in excess of the reporting level.

Market makers and other Options Exchange Participants qualifying as persons to hold positions in excess of the statutory limit under the Securities and Futures (Contract Limits and Reportable Positions) Rules will continue to be authorised to hold positions in excess of the statutory limit if approved by the Stock Exchange to have a higher limit.

Please see the attachment for examples and other additional information.

ATTACHMENT

Examples on the adjusted position limits and reporting levels

• Examples of the adjusted position limit:

(1) If the position limit is 30,000 and an Options Exchange Participant or a client is long a total of 28,000 calls and short 3,000 puts in the same option class, it has exceeded the limit; but if it is long 28,000 calls and long 3,000 puts, it has not.

(2) If the position limit is 50,000 and an Options Exchange Participant or a client is long a total of 35,000 calls and 15,000 puts and short a total of 10,000 puts and 32,000 calls in the same option class, the limit has not been reached, since the positions in one market direction will be 45,000 contracts (long 35,000 calls and short 10,000 puts) and 47,000 contracts in another market direction (short 32,000 calls and long 15,000 puts).

• Example of the adjusted reporting level:

(1) The reporting level for Stock X is 1,000 contracts.  A client buys 1,100 September Stock X calls on Day 1.  These positions will have to be reported by no later than 12:00 noon of Day 2.  However, the client does not need to report on or before Day 2 if he sells 150 September Stock X calls on Day 1 to close out some of the contracts, thereby reducing his positions to below the reporting level.

So long as the client holds more than 1,000 September Stock X calls on Day 2 or succeeding days, he will need to report his positions daily even though his positions remain unchanged.

Notes:

1. The Securities and Futures Commission has posted its Guidance Note on Position Limits and Large Open Position Reporting Requirements on its website.

2. For background information on the new position limits, please see the article in the January 2006 of HKEx’s newsletter, Exchange, at the following link:

• http://www.hkex.com.hk/eng/newsconsul/newsltr/2006/documents/2006-01-06-e.pdf