Hong Kong Exchange launches new equity index option

The Hong Kong Exchange and Clearing (HKEx) has launched a new equity index option for retail investors, called the Mini-Heng Sang Index Options (Mini-HSIO). On its first day of trading yesterday, volume on the Mini-HSIO reached 171 contracts, comprising 158 calls and 13 puts, a spokesman for the HKEx said.

“The first day trading volume for Mini-HSI Options was encouraging,” HKEx chief operating officer Frederick Grede said in a statement. The exchange’s spokesman noted that the “HKEx never sets volume or open interest targets for new derivatives products because experience has shown new products often take time to develop”.

The new options contract is largely based on the Heng Sang Index Options contract, but with features that offer access to the market to retail investors, such as a lower amount of investment needed, as the Mini-HSIO is worth HK$10 per index point while the HSIO is worth HK$50 per index point.

The Mini-HSIO currently has four contract months: December 2002, January 2003, March 2003 and June 2003. Final settlement price is calculated on the expiry day, which is the day before the last business day of the contract month, and is equal to the average of HSI quotations taken at five-minute intervals on the expiry day. The final settlement day is the last business day of the contract month.

Trading fees and levies are a total of HK$3.50 per contract on the Mini-HSIO, including a HK$2 fee charged by the HKEx. That compares with HK$11.50 on the HSIO, including a HK$10 fee from the HKEx. The exercise fee is HK$2 on the retail contract, compared with HK$10 on the HSIO.

Trading on the HSIO reached 7,727 contracts yesterday, including 4,726 calls and 3,001 puts. Average daily trading volume in October was 4,954 contracts.

The launch of the new product comes amid a drop in local retail investor participation in the HKEx. In a recent survey, the HKEx said that local retail investors accounted for 29% of trading in 2001/02, down from 36% in 2000/01. At the same time, foreign participation grew to 21% from 17%, partly thanks to the retail Mini-HSI Futures that were introduced in October 2000 and on which foreign retail investors account for 16% of trading.