The Stock Exchange of Hong Kong Limited (Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx) today (Thursday) announced measures to facilitate the listing of a wider range of Market Access Products (MAPs) as a means to further encourage financial innovation.
Generally, MAPs are structured products with the following underlying assets:
- a security listed on an overseas exchange
- a commodity asset or a derivative contract
- an index based on (a) and (b)
To facilitate the listing of a wider range of MAPs the Exchange has enhanced the structured products’ regime as set out below.
Recognised Exchanges
Structured products may only be issued over an overseas-listed security (or index based thereon) if the security is listed on an exchange that has been recognised for this purpose. Following a review, the Exchange has now expanded the list of recognised exchanges to include all members of the World Federation of Exchanges (WFE) and certain other exchanges. A list of the 66 exchanges now recognised is set out in Appendix I. Other exchanges will be considered for recognition on a case by case basis on request from issuers. Contracts listed on reputable commodity and derivative exchanges and foreign currencies have always been eligible for structured product issuance and will continue to be so.
Maturity
Structured products are not required to be collateralised. To protect investors against an adverse change in the credit standing of an issuer between the issuance and maturity of a structured product, structured products are subject to a maximum life of five years.
The Exchange understands that investors in MAPs may seek a longer term exposure than the current five-year limit would permit. The Exchange considers that it would be appropriate to provide a mechanism to support the listing of longer dated MAP, provided that such mechanism does not compromise the credit protection afforded to investors by the current requirement.
One such mechanism to facilitate this by a modification of general application of the Listing Rules is the rollover approach. The Exchange has received consent for such a waiver from the Securities and Futures Commission. The principal feature of the rollover approach is that at five yearly intervals from launch until the final maturity date there is an assessment of whether the issuer meets the then extant eligibility criteria for structured product issuance. If on any of those occasions the issuer does not meet those criteria the structured product will expire and investors will be paid out in accordance with a pre-determined settlement formula. Issuers should contact the Exchange for further details of the rollover approach.
Richard Williams, HKEx’s Head of Listing commented: “HKEx has taken these steps to facilitate the further development of the structured product market in Hong Kong. The rollover approach facilitates the listing of longer dated structured products whilst maintaining the very high credit standing requirements that form a core element of the eligibility requirements for listing structured products.”
Eric Yip, Head of Cash Market added: “These changes will allow issuers to provide investors with long term exposures to a wide range of underlying assets including single market, regional, thematic, proprietary and Islamic indices, emerging market securities, commodities such as precious metals, natural resources and emission credits, financial derivatives such as interest rate and currency futures, and many more. We look forward to working closely with issuers on the listing of structured products that could further expand the diversity of the Hong Kong securities market.”
Appendix I
Overseas Exchanges Recognised for the Purposes of Issuing Structured Products
(In alphabetical order)