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Enoch Yiu

The stock exchange's new market development working group is to recommend that three new products be listed.

  Group chairman Alan Smith last week said that after six months of study, regional derivative warrants, regional convertible bonds and depositary receipts would be recommended for inclusion in the local exchange.

  Mr Smith said these products were currently traded on both the over-the-counter and London markets.

  'It might happen that both the buyer and seller are in Hong Kong but they need to do the trading in London since these products are not listed in Hong Kong,' he said.

  'If these products list in Hong Kong, it would provide transparency and liquid markets for brokers and fund managers.

   'It would also help to strengthen the role of Hong Kong as an international financial centre.'   Mr Smith, who also said the introduction of a hi-tech company board was being examined, said the listing requirements of the three new products would be studied by the stock exchange listing committee and would need approval from the Securities and Futures Commission (SFC).

   Mr Smith said many Asian companies, including Bangkok Bank and San Miguel Philippines, issued derivative warrants that were listed on Asian exchanges.

   Companies from Singapore, Thailand and Korea favoured raising capital through convertible bonds. 'There are a lot of existing Asian convertible bonds which are not listed on the Stock Exchange of Hong Kong and every month there are new regional convertible bonds issued in Asia,' he said.

  'The existing listing rules don't need much adjustment for these products since there are already regulations about derivative warrants and convertible bonds so the working group agreed to recommend these products.'   The working group would propose that derivative warrants and convertible bonds issued by companies already listed in exchanges that are members of the international exchanges association (FIBV) should be accepted in Hong Kong.

  Companies listed on the Taiwanese, Indian and Philippine exchanges would also be recommended.

 Mr Smith said the working group did not study whether Hong Kong should accept derivative warrants or convertible bonds issued by companies listed in the Chinese markets because there was a separate working group to study China-related issues.

   He said the SFC in principle supported the launching of these two products, but had strong reservations about the introduction of depositary receipts.

  He said the SFC was worried that if a depositary receipts market was set up in Hong Kong, it would create a channel for backdoor listings for some Chinese companies and a loophole for already listed companies.

   'For example, the Chinese companies may go to list in Singapore but trade in Hong Kong by issuing depositary receipts,' he said.

 'Some Hong Kong companies may also de-list from Hong Kong and list in the other market and then issued depositary receipts in Hong Kong.' He said they would then be able to trade in Hong Kong without following Hong Kong's listing rules.

  Mr Smith expressed confidence that guidelines could be drafted to overcome these problems, especially as there was a need for Hong Kong to set up a depositary receipts market.

  For example, they could require that companies have been listed in their home market for a certain number of years before issuing depositary receipts in Hong Kong, he said.

 Mr Smith said the working group would continue to study new products for the exchange this year, including a hi-tech company board.

  'Some people have suggested the introduction of a hi-tech company board since high technology is widely used nowadays,' he said.

   He said the demands of the market needed to be studied because Hong Kong was not a hi-tech centre and people interested in the field would prefer to work from the United States.

  Mr Smith said the working group would need to study investor interest in hi-tech companies before making recommendations to the exchange.

MORE LINES Regional derivative warrants and convertible bonds  Depositary receipts Possible hi-tech board 



New products to launch