Equity derivatives traders in Hong Kong are gearing up to restart the domestic warrant market after new postings completely dried up in June as firms waited for new regulations to be issued. Firms stopped posting warrants on the Hong Kong Stock Exchange after Hong Kong Exchanges and Clearing issued a consultation paper on May 31 proposing rule changes, according to traders.
Traders in the territory expect the regulations to be sorted out by January and a flurry of activity to follow. "There's a lot of pent up demand," said Eddie Tam, director of equity derivatives at Credit Lyonnais in Hong Kong. "We hope this gets going as soon as possible and that the market will be at least partially reformed and better than before," he continued. One trader at a U.S. bank in Hong Kong estimated that at least 30 to 40 issues could hit the market in the first few weeks, most likely on blue chip names, such as HSBC, China Mobile and Hutchison Whampoa. Another trader estimated that at its peak, the market had around 300 outstanding issues at one time.
The new proposals are expected to remove certain regulations that hindered the market, according to traders, such as a minimum placement to 100 clients and only holding a maximum of 15% of the warrant on the issuer's books.
Lorraine Chan, spokeswoman at the HKEx, said the exchange is reviewing responses and has formed informal working groups with warrant derivative issuers discussing possible amendments. She declined to comment on a timeframe.