Credit Lyonnais has revived its role as a structurer of warrants on baskets of B shares listed on the Shenzhen and Shanghai stock markets, four years after becoming the first firm to put together such a deal. Eddie Tam, director, equity derivatives in Hong Kong, said the move is in response to a resent surge in daily turnover. He believes the market for warrants on B shares has lain dormant since CL structured the first trade in 1997 because of poor liquidity.
Turnover in B shares is now around USD700 million per day, versus USD2-3 million per day earlier this year, and likely will spike higher following China opening the market on June 1 to all holders of hard currency, said Vishal Tourani, equity derivatives analyst at CL in Hong Kong. Previously the B share market was only open to investors that already held trading accounts. "The turnover's phenomenal," he added.
At the request of a European fund CL structured USD20 million in six-month European-style calls on a basket of 10 mainland stocks listed on the B share markets. Investors break even if the underlying basket appreciates by 7%, Tourani explained. The trade is advantageous for bullish investors because their up-front costs are lower than if they purchased the underlying shares outright. The warrant is listed on the Luxembourg stock exchange.
"It's unique," said an equity derivatives trader at a rival firm in Hong Kong. He believes Credit Lyonnais is aggressive in structuring this offering so quickly after the B share market opened further.
