Futures exchange seeks livelier trade
The Hong Kong Futures Exchange (HKFE) aims to revive its moribund stock futures market next month by trading on the automated trading system (ATS) and introducing market making.
The move is seen as an attempt to rescue the products, launched in March 1995, from lacklustre investor demand.
The past few months have seen no turnover at all.
Kevin Cheng, HKFE head of economic research and product development, attributed the lack of interest in stock futures, and therefore their thin liquidity, to the method of trading and the absence of market-makers.
'Investors find it difficult to get out of the market when there is no market-maker to ensure liquidity,' he said.
'The trading method is also a problem. Stock futures are currently using the open outcry system to trade, which is different from the stock options markets, which is using the automated trading system.
'Stock options market-makers thus find it very difficult to use stock futures to hedge their positions.
'The move, hopefully, will help to attract the stock option market-makers to trade the products.' Mr Cheng said the HKFE would announce a list of market-makers two weeks before the stock futures were launched through the ATS on February 14.
Mark Beddis, executive director of the stock exchange traded options division, said stock options market-markers were at present using the cash market to hedge their positions because they could get a waiver from stamp duties for the stocks they traded for hedging purposes.
'There is no strong need for market makers to use alternatives instead of stocks to hedge their positions, so I don't think the market-makers have a great interest in stock futures,' he said.
'However, if the stock futures market has enough liquidity, it will be a useful instrument for hedging and someone may be interested in it.' Fred Hochberger, managing director of ING Futures and Options (Hong Kong), said the move might attract small investors to stock futures.
'The stock futures have no trading at all. It is better to do something rather than not doing anything.' He said it would be hard to attract institutional investors, because they were more interested in index futures and options.
The HKFE's ATS system is at present used to trade the currency futures product known as rolling forex.
As an advanced trading system, it is capable of trading a wide range of futures and option products, including stock futures. With the shift to the ATS, firm bid and offer prices on stock futures are continuously quoted on the screen.
All orders are automatically matched based on price and priority. A market-maker system will be introduced to provide continuous quotes.
The three stock futures at present traded on the HKFE are HSBC Holdings, Hongkong Telecom and Cheung Kong (Holdings).