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Friday, 3 October 2008
Five Issuers to Quit Competitive Warrant Market
At least five derivative issuers will withdraw from the Hong Kong warrant market amid the global financial crisis, according to an executive of Societe Generale, one of most active participants in the market. PDF
At least five derivative issuers will withdraw from the Hong Kong warrant market amid the global financial crisis, according to an executive of Societe Generale, one of most active participants in the market.
“These issuers have not launched new products in the Hong Kong warrant market for quite a long time and they will exit the market early next year,” said Edmond Lee, a director of equity derivatives at Societe Generale. “Even if they are still here, stronger competition and higher market volatility will make them less active.”
Tremendous growth in the city’s warrant market over the past three years, driven by mainland investment, has attracted such big-name banks as Merrill Lynch, Citi, HSBC Holdings and Goldman Sachs.
“[But] fierce competition has meant some issuers have less negotiating power with investors,” Mr Lee said.
Hong Kong was the world’s largest warrant market in 2004, 2005 and 2007, losing the leading position to Germany in 2006.
Warrants give investors the right, but not the obligation, to buy or sell the underlying stock at a pre-set price on or before a specified date.
The top five warrant players accounted for 80 per cent of the market in Hong Kong, with the rest shared by 18 issuers.
“Some issuers have less than 1 per cent of the market and it is not worth it to run a business with rising operating costs,” said a director at a major derivative issuer.
But Mr Lee said at least two new investment banks would join the warrant market next year, given the high trading volume of the local market as well as investors’ strong appetite for derivative products.
Daily turnover on the Hong Kong stock market over the past three months has dropped 16 per cent to HK$63.4 billion from the previous quarter’s HK$75.8 billion due to the global market downturn.
In the third quarter, daily warrant turnover amounted to HK$9 billion, a 42 per cent drop compared with HK$15.7 billion in the previous quarter, mainly due to the market slump.
Warrant trading in the third quarter accounted for 14.1 per cent of total market turnover, well below the second quarter’s 20.7 per cent.
The trading volume of the two main derivative products - warrants and bull and bear callable contracts - was expected to rise 10 per cent to HK$5 trillion by the end of the year, compared with HK$4.7 trillion at the same time last year, mostly contributed by strong demand for bull/bear callable contracts, Societe Generale said.
The French investment bank said it expected total warrant sales to drop 19 per cent to about HK$3.8 trillion this year while the sales of bull and bear callable contracts were expected to rise 15 times to HK$1 trillion, well above the total sales of HK$65 billion last year.
More alternative fund managers and professional investors were using bull or bear callable contracts as hedging tools, besides the traditional forward contracts and share options, said Cheung Siu-kiu, a director at KBC Financial Products.
Bull or bear callable contracts track the performance of an underlying asset.
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Five Issuers to Quit Competitive Warrant Market
Wong Ka-chun
3 October 2008
At least five derivative issuers will withdraw from the Hong Kong warrant market amid the global financial crisis, according to an executive of Societe Generale, one of most active participants in the market.
“These issuers have not launched new products in the Hong Kong warrant market for quite a long time and they will exit the market early next year,” said Edmond Lee, a director of equity derivatives at Societe Generale. “Even if they are still here, stronger competition and higher market volatility will make them less active.”
Tremendous growth in the city’s warrant market over the past three years, driven by mainland investment, has attracted such big-name banks as Merrill Lynch, Citi, HSBC Holdings and Goldman Sachs.
“[But] fierce competition has meant some issuers have less negotiating power with investors,” Mr Lee said.
Hong Kong was the world’s largest warrant market in 2004, 2005 and 2007, losing the leading position to Germany in 2006.
Warrants give investors the right, but not the obligation, to buy or sell the underlying stock at a pre-set price on or before a specified date.
The top five warrant players accounted for 80 per cent of the market in Hong Kong, with the rest shared by 18 issuers.
“Some issuers have less than 1 per cent of the market and it is not worth it to run a business with rising operating costs,” said a director at a major derivative issuer.
But Mr Lee said at least two new investment banks would join the warrant market next year, given the high trading volume of the local market as well as investors’ strong appetite for derivative products.
Daily turnover on the Hong Kong stock market over the past three months has dropped 16 per cent to HK$63.4 billion from the previous quarter’s HK$75.8 billion due to the global market downturn.
In the third quarter, daily warrant turnover amounted to HK$9 billion, a 42 per cent drop compared with HK$15.7 billion in the previous quarter, mainly due to the market slump.
Warrant trading in the third quarter accounted for 14.1 per cent of total market turnover, well below the second quarter’s 20.7 per cent.
The trading volume of the two main derivative products - warrants and bull and bear callable contracts - was expected to rise 10 per cent to HK$5 trillion by the end of the year, compared with HK$4.7 trillion at the same time last year, mostly contributed by strong demand for bull/bear callable contracts, Societe Generale said.
The French investment bank said it expected total warrant sales to drop 19 per cent to about HK$3.8 trillion this year while the sales of bull and bear callable contracts were expected to rise 15 times to HK$1 trillion, well above the total sales of HK$65 billion last year.
More alternative fund managers and professional investors were using bull or bear callable contracts as hedging tools, besides the traditional forward contracts and share options, said Cheung Siu-kiu, a director at KBC Financial Products.
Bull or bear callable contracts track the performance of an underlying asset.
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