Hong Kong Futures Exchange Limited (HKFE) will introduce a new Market Maker (MM) model for its products and a revised trading fee discounts scheme for MMs trading in stock index futures or options on 1 February next year.
The new MM model is designed to simplify and improve the quality of market making services. It focuses on registration and responsibility of Exchange Participants (EPs) activities, and will discontinue registration of third parties known as Registered Traders (RTs).
Most EPs currently participating in market making are not expected to encounter difficulties in migrating to the new MM model. They will be deemed as MMs upon submission of a simple application, though HKFE may at the time of application request documentary evidence showing they comply with the new MM model.
Main features of the new MM model:
|
|
All Employee RTs (individuals nominated by an EP to perform market making activities) and Client RTs (individuals acting on their own behalf or acting for a corporation to make markets through an EP) will be deregistered at the effective date of the new MM model and the existing tripartite agreement executed amongst them, the relevant EPs and HKFE will be terminated.
|
|
|
MMs which wish to carry market making positions in a client account must make arrangements with one or more other corporate entity as clients. Such corporate entities will be subject to one of the following eligibility requirements:
|
|
|
- |
be a regulated entity (excepting introducing agents); |
|
|
- |
be a licensed bank; |
|
|
- |
have a credit rating of A- or above (Standard & Poor’s) or A3 or above (Moody’s); |
|
|
- |
have minimum paid-up capital of $50 million and minimum shareholder funds of $100 million.
|
|
MMs must ensure that the corporate entities fulfil all the MM requirements and obligations. |
In parallel with the implementation of the new MM model, HKFE will revise its exchange fee discounts for MMs trading in stock index futures or options. The revision is designed to ensure there will be adequate and appropriate incentives for MMs.
Under the revised exchange fee discount scheme, MMs in a stock index futures or options market enjoy discounted exchange fees in that market when trading for their own registered trader accounts, but they will not receive any exchange fee discount when trading in other unrelated index futures and options.
Amendments to the relevant rules and procedures relating to the new MM model and revised trading discounts were approved by the Securities and Futures Commission. A full text of these amendments can be viewed under the rule update section on the HKEx website at http://www.hkex.com.hk/eng/rulesreg/traderules/pages/tradingrules.htm.