Hong Kong Exchanges and Clearing Limited (HKEx) will offer additional expiry months in selected stock option classes starting in the second quarter of this year.
Under the scheme, a third calendar quarter expiry month will be introduced for trading in the following five stock option classes from 2 April:
- Cheung Kong
- China Life Insurance
- China Mobile
- HSBC
- Hutchison Whampoa
As a result, the expiry months available for trading in the five stock option classes from 2 April will be April, May, June, September, December 2007 and March 2008.
"We are monitoring the market for signs of demand for the third calendar quarter expiry month or other longer-dated expiry months in the other option classes and may consider introducing additional expiry months in more selected stock option classes to further expand the choices available to investors," said HKEx Chief Operating Officer Gerald Greiner.
HKEx will introduce revised market making obligations in its stock options and stock futures markets on 2 April in a separate initiative (the revised obligations are attached below).
"These revisions underline our commitment to quality market making services," said Mr Greiner.
Revisions in Market Making Obligations in Stock Options
| 1. |
Market Making Spread
Requirements in Stock Options with Reference to the Best Bid/Ask Spread
in the Underlying Stock |
|
| a) | Liquidity Level 1 | |
|
Option Series |
Rule |
Existing Spread Rules (whichever is lower) |
Revised Changes(whichever is lower) |
|
Spot with 3 days or less to expiry |
% |
20% of option bid price |
No change |
|
Max |
Best B/A Spread + 1 Minimum Spread |
Best B/A Spread x 3
|
|
|
Spot month with 4 days or more to expiry; two next expiry months |
% |
10% of option bid price |
No change |
|
Max |
Best B/A Spread + 1 Minimum Spread |
Best B/A Spread x 3 |
|
|
The next two quarter months |
% |
20% of option bid price |
No change |
|
Max |
Best B/A Spread + 1.5 Minimum Spreads |
Best B/A Spread x 4 |
|
|
The third calendar quarter months and any other longer-dated expiry month as the Exchange deems necessary (new) |
% |
N/A |
20% of option bid price |
|
Max |
N/A |
Best B/A Spread x 8 |
| b) | Liquidity Level 2 |
|
Option Series |
Rule |
Existing Spread Rules (whichever is lower) |
Revised Changes (whichever is lower) |
|
Spot with 3 days or less to expiry |
% |
20% of option bid price |
No change |
|
Max |
Best B/A Spread + 2 Minimum Spreads |
Best B/A Spread x 4
|
|
|
Spot month with 4 days or more to expiry; two next expiry months |
% |
10% of option bid price |
No change |
|
Max |
Best B/A Spread + 2 Minimum Spreads |
Best B/A Spread x 4
|
|
|
The next two quarter months |
% |
20% of option bid price |
No change |
|
Max |
Best B/A Spread + 2.5 Minimum Spreads |
Best B/A Spread x 6
|
|
|
The third calendar quarter months and any other longer-dated expiry month as the Exchange deems necessary (new) |
% |
N/A |
20% of option bid price |
|
Max |
N/A |
Best B/A Spread x 12 |
| c) | Minimum Spread Requirements |
|
Underlying Price |
Existing Rule |
Revised Changes |
|
> = $100 |
Minimum Spread + $0.10 |
Best B/A Spread + $0.10 |
|
< $100 |
Minimum Spread + $0.05 |
Best B/A Spread + $0.05 |
| 2. |
Minimum Quote Size Requirements in Stock Options |
|
|
MM Minimum Quote Size Requirements |
Existing Determining Method |
Revised Determining Method |
|
30 contracts |
Tier 1 |
Liquidity Level 2 |
|
60 contracts |
Tier 2 |
Liquidity Level 1 |
| 3. |
Methodology in Determination of Liquidity Levels |
|
|
Liquidity Level |
Existing Mechanism |
Revised Mechanism |
||
|
Liquidity Level 1 |
(a) |
More than 50% of the time with the best
B/A Spread equal to the minimum cash spread; and |
(a) |
Unchanged; and |
|
(b) |
More
than 50% of the time with the underlying order size at the best B/A
spread larger than the required MM quote size, i.e. 30 contracts in Tier
1 options and 60 contracts in Tier 2 options. |
(b) | More than 50% of the time with the underlying order size at the best B/A Spread larger than 60 contracts. | |
|
Liquidity Level 2 |
(a) | 50% or
less of the time with the best B/A Spread equal to the minimum cash
spread; or |
(a) | Unchanged; or |
|
|
(b) |
50% or less of the time with underlying order size at the best B/A spread equal to or less than the required MM quote size, i.e. 30 contracts in Tier 1 options and 60 contracts in Tier 2 options. |
(b) |
50% or less of the time with underlying order size at the best B/A Spread equal to or less than 60 contracts. |
| 4. | Market Making Performance Eligible for Trading Tariff Discount | |
|
MM Obligations |
MM Performance per Month |
Existing Rate |
Revised Rate |
|
Responding to Quote Requests |
Passing Rate |
> = 50% |
No Change |
|
Response Rate with Trading Tariff Discount |
> = 80% |
> = 70% |
|
|
Providing Continuous Quotes |
Passing Rate |
> = 50% |
No Change |
|
Quote Rate with Trading Tariff Discount |
> = 70% |
No Change |
Revisions in Market Making Obligations in Stock Futures
| 1. |
Market Making Obligations in Responding to Quote Requests in Stock Futures |
|
|
Market Making Obligation |
Existing Parameters |
Upcoming Changes |
|
Maximum Bid/Offer Spread |
$0.15 or 2 minimum underlying spreads, whichever is greater |
$0.15 or 4 times the best bid/offer spread in the underlying stock, whichever is greater |
|
Quote Size |
10 contracts |
No change |
|
Response Time |
1 minute |
10 seconds |
|
Display Time |
5 seconds |
20 seconds |
| 2. |
Market Making Obligations in Providing Continuous Quotes in Stock Futures |
|
|
Market Making Obligation |
Existing Parameters |
Upcoming Changes |
|
Maximum Bid/Offer Spread |
$0.15 or 2 minimum underlying spreads, whichever is greater |
$0.15 or 4 times the best bid/offer spread in the underlying stock, whichever is greater |
|
Quote Size |
5 contracts |
10 contracts |
|
Display Time |
5 seconds |
20 seconds |
B/A = Bid/Ask
Max = Maximum
MM = Market Making
