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Operating Features and price quoting for Inline Warrants

Stock Code/ Stock Short Name

Similar to Standard Warrants and Callable Bull/Bear Contracts (“CBBCs”), the naming conventions for Inline Warrants is made up of serial numbers, alphabets and symbols. Take for instance, Vontobel’s Inline Warrants, XXXXX VT_HSI@L2007A; detailed as follows:

  • XXXXXInline Warrants take 47xxx to 48xxx as stock code.
  • VTIssuer’s short name, VT stands for Vontobel.
  • HSIUnderlying asset, HSI stands for Hang Seng Index
  • @Cash settlement
  • LShort form for Inline Warrant
  • 2007Expiry year and month
  • ASerial number for additional issues by the same issuer on same underlying with same expiry year and month (A, B, C...)

Currently, Hong Kong Exchanges and Clearing Limited (“HKEX”) allow issuers to issue Inline Warrants on Hang Seng Index, as well as on the top 5 most liquid stocks by turnover. Among all underlyings, HKEX will select the 5 most actively-traded stocks on the Exchange for issuers to issue Inline Warrants. Underlying by having a high trading volume and liquidity will facilitate the issuers to provide sufficient liquidity for Inline Warrants so as to attain reasonable bid-ask spread.

“Liquidity Provider” Mechanism

Similar to Standard Warrants and CBBCs, the Liquidity Providers of Inline Warrants also serves as the issuers to provide liquidity for this structured product. Hong Kong as a world-leading listed structured products marketplace, featuring one of the most stringent Liquidity Provision rules and regulations; this is also applicable to Inline Warrants. The price quoting mechanism of Inline Warrants is classified into “Active Quotes” and “Quote Request”. “Active Quotes” refer to the provision of liquidity where a liquidity provider actively inputs orders into the Exchange’s trading system. Issuers who offer “Active Quotes” for Listed Structured Products shall fulfil the requirement i.e. having an active underlying, 50% or less of their aggregate number outstanding in the market, time to maturity is one month or more etc… Under the “Active Quotes” mechanism, the bid-ask spread of all warrants with index underlying shall not be greater than 5 ticks, whilst stock underlying shall not be greater than 10 ticks and “Active Quotes” should be provided for at least 90% of the time of a trading day for structured products with each pause should not exceed 10 minutes.

If Inline Warrants do not fulfil into the requirement of “Active Quotes”, investors can request the Liquidity Provider for quotation, i.e. the “Quote Request”. For “Quote Request”, the current service levels including but not limited to the maximum response time being 10 minutes, maximum bid-ask spread for Inline Warrants is HKD0.08. Worthwhile to note, the current service level of having maximum bid-ask spread for Inline Warrants is HKD0.08 is different from the maximum bid-ask spread for Standard Warrants of 20 ticks.

Inline Warrants will complement HKEX’s existing structured products suite that already includes Derivative Warrants and CBBCs, for which both of them focused on directional trading. Investors can formulate investment strategies by choosing their perfect combination of derivatives, structured products and the newly launched Inline Warrants. Meanwhile, the Regulators have retained the most promising achievement of the warrants market: the “Liquidity Provider” mechanism, committed to promoting a fair and transparent market.

Important Risk Warning
  • - This is a non-collateralised structured product.
  • - The price of Structured Products generally may fall in value as rapidly as they may rise and you should be prepared to sustain a significant or total loss of the purchase price of the Structured Products.
  • - You should ensure that you understand the nature and risks and seek professional advice where applicable.
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