Highlights of the adjustment arrangements to HKEx futures and options contracts are attached. Investors should consult their brokers for further details.
For ordinary dividends, HKFE and SEOCH generally will not make capital adjustments to stock futures and options contracts under a policy effective on 8 December 2003. For other cash distributions such as cash bonuses and special dividends, they will only make an adjustment when payment is two per cent or more of the underlying share¡¦s closing price on the day the distribution is announced. In addition, both HKFE and SEOCH reserve the right to consider capital adjustments under exceptional cash distribution circumstances on a case-by-case basis. The participants of HKFE and SEOCH were informed of this policy in early December 2003.
HKEx Futures Contracts
Immediately before the market open on 24 March 2004 (the ex-dividend date):
i) The adjusted contracted prices (ACP) will be determined by the following formula and rounded to nearest two decimal places:
Contracted prices of outstanding HKEx futures contracts times [(S ¡V 0.42 ¡V 1.68) / (S ¡V 0.42)]
where S is the closing price of HKEx shares on 23 March 2004, 0.42 represents the final dividend proposed on 26 February 2004 and 1.68 represents the special dividend proposed on the same date.
ii) An adjusted contract multiplier will be determined by the following formula and rounded to the nearest whole number:
Contracted prices of outstanding HKEx futures contracts times 2,000 / ACP
On 24 March 2004:
i) Adjusted HKEx futures contracts will be traded under a temporary trading symbol HEA until the expiration of the existing March, April, May, June and September 2004 contracts respectively or until all outstanding positions in any contract month are closed, whichever occurs first. Contract months for the adjusted contracts will be immediately suspended from trading when there is no outstanding position after the market close on the trading day prior to the ex-dividend date; and
ii) The available contract months for standard HKEx futures contracts with the original contract multiplier of 2,000 shares, under the original trading symbol HEX, will be April, May, June and September 2004.
After the adjustments of all outstanding positions in HKEx futures contracts, which are expected to take effect on the ex-dividend date, there will be two sets of HKEx futures contracts. The adjusted contracts with trading symbol HEA and the standard contracts with trading symbol HEX will be available for trading in parallel. The adjusted contracts with the adjusted contract multiplier and the standard contracts with the standard contract multiplier of 2,000 shares of HKEx are distinct contracts.
HKEx Options Contracts
After the close of business on 23 March 2004:
i) The adjusted exercise price will be R times the old exercise price where R is the adjustment ratio using the formula [(S ¡V 0.42 ¡V 1.68) / (S ¡V 0.42)], where S is the closing price of HKEx shares on 23 March 2004, 0.42 represents the final dividend proposed on 26 February 2004 and 1.68 represents the special dividend proposed on the same date.
ii) The adjusted contract size will be the old contract value divided by the adjusted exercise price. As a result of the adjustment, the adjusted contract size will carry odd lots as well as fractions of a share.
iii) Open positions
The number of open positions in the old series will be transferred to the respective adjusted series. Only the exercise price and contract size are being adjusted and there will not be any changes to the number of open positions after the adjustment. All such open contracts will be traded and settled under the adjusted strike price and adjusted contract size from 24 March 2004 onwards.
iv) Generation of standard series
New series of the standard contract size of 2,000 shares per contract will be generated in accordance with Operational Trading Procedures so that there will be five series (one at-the-money, two in-the-money and two out-of-the-money) in each of the expiration months of April, May, June and September 2004 available for trading on 24 March 2004.
