HKEx cuts derivatives fees in competitiveness drive

Hong Kong Exchanges and Clearing (HKEx) has proposed a reduction in fees for its listed derivatives products, as part of a drive to improve the competitiveness of the exchange and attract greater numbers of overseas investors.

The main beneficiary from the cuts will be the Hong Kong warrants market, which will see listing fees for new warrants reduced to HK$60,000 ($7,692) from HK$80,000 for the first warrant on a particular underlying stock, with a further reduction to HK$40,000 for each subsequent issue on the same underlying.

The high cost for listing has been fiercely criticised by market participants since the warrants market burst back into life after a seven-month lay-off in January. The cost of issuance in Germany in comparison is around US$2,000-$3,000, including listing charges and legal costs. “It is a step in the right direction, but I think there’s still a lot more to go,” commented one Hong Kong-based equity derivatives head who asked not to be named.

In addition, the exchange has proposed a revision of the contract size and transaction costs for the established one-month and three-month Hibor futures contracts. Under the new plan, the contract size for the one-month Hibor futures will increase to HK$15 million from HK$3 million, while transaction costs will rise to HK$5 from HK$2, effectively giving a 50% reduction in costs. The contract size of the three-month Hibor futures will increase to HK$5 million from HK$1 million, with transaction costs increasing by the same amount as the one-month contract.

“We will continue to look at contract design on all of our products to make sure they’re priced competitively,” said Fred Grede, chief operating officer of HKEx. “As we begin to expand the business internationally, we have been forced to look at a more international pricing structure.”

In a separate announcement, HKEx also revised its quota limits for new warrant issues. Currently, the number of warrants permitted on any underlying stock is limited to 30% of the public float of the stock, or 20% of the issued shares. Following the resumption of warrants trading, which has seen a flood of more than 260 warrants since January 28, the quota on six Hong Kong stocks has already been reached, meaning no more warrants can be issued.

Under the new proposals, the quota limits remain unchanged, but the exchange will now look at the number of warrants based on a particular underlying stock held by the public. In many cases, while the quota levels on a warrant may be high, the amount actually held by the public may be much lower, the exchange said. “It’s quite a good first step,” the equity derivatives head added. “I’d be surprised if any of the stocks that had quota problems yesterday will have them today, because the amount actually sold on those warrants is quite small.”