Hong Kong Exchanges and Clearing Limited (HKEx) will revamp its stock options market in a range of areas from product design and fees to market making with effect from 2 May this year in response to growing market interest in the product.

"The Stock Options Revamp we are announcing today aligns with our Strategic Plan for 2013-2015, which aims to pursue a growth strategy on our strong base," said Romnesh Lamba, HKEx's Co-head of Global Markets.

"We are revamping our stock options to capture new opportunities created by regulatory changes that have increased demand for exchange-traded derivatives and central counterparty clearing.  With the measures, we believe we can increase our stock option market's attractiveness to existing users of the OTC option-like instruments," Lamba added.

HKEx expects the revamp will help increase market liquidity and benefit retail investors as well as institutional investors. Among other things, the changes will help market participants to formulate investment strategies for achieving the kind of yield enhancement offered by some popular structured products.

The stock options revamp includes:

• Trading fee reductions – Twenty-six of the current stock option classes will have a trading fee reduction of 50 to 83 per cent as a result of a new trading fee of $0.50 per contract for stock options with notional value of less than $10,000.  This initiative will significantly reduce the transaction costs for 40 per cent of the current stock option classes.
   
• Enhanced market making – New Primary Market Makers (PMMs) will provide continuous quotes in at least 120 series per option class, five times the quote requirement for existing market makers.  The first phase of the PMM programme will begin in the second quarter of this year and cover five active stock options representing over 20 per cent of the current trading volume in the stock options market (AIA, China Life Insurance, China Mobile, CNOOC and HSBC).
   
• Additional expiry month – Expiry months for all stock option classes will include a new fourth serial expiry month, i.e. expiry months available for trading will be the spot month, next three calendar months and next three quarter months (quarter months are March, June, September and December).  This will give investors more choice.
   
• Market data fee waiver – The subscriber fee for real-time stock option prices on a snapshot basis (including bid/ask price and volume, high/low, traded price and volume) will be waived for one year to encourage Exchange Participants to include stock option prices on their websites or trading terminals.  This will help increase the visibility of the stock options market to the public. 

HKEx also enhanced its stock options education by introducing over 10 tools through the new Stock Options Corner on the HKEx website.  The Stock Options Corner includes educational videos and courses for stock options beginners as well as new analytical and risk management tools for experienced stock options investors.  Stock options market information such as implied volatility, historical volatility and option exercise history is also provided together with option prices.

Coupled with the new Stock Options Corner, HKEx will sponsor a stock options game on Facebook from 25 March to end of April, with prizes such as smartphones and other consumer electronics.  Details are available at:www.hkex.com.hk/stockoptions.

HKEx is one of the top Asian exchanges for stock options trading, according to World Federation of Exchanges statistics. Stock options' average daily trading volume at HKEx in January-February 2013 stood at 287,500 contracts, up 18 times from 2002.  Stock options are now the most active exchange-traded derivatives in Hong Kong.

"We expect this revamp to bring more liquidity and growth to our stock options market, which accounted for nearly half our derivatives market turnover last year," said Calvin Tai, HKEx’s Co-head of Equities, Fixed Income and Currency Business. "Stock options are excellent wealth management tools that are often used to generate income when equity markets trade in a narrow range and to profit from price movement when shares trade in a broad range.  They also offer some flexibility to investors who choose to sell a put or call option."

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