Tariff cuts give boost to options
The traded options market has been boosted significantly this year after a decision by the stock exchange to reduce tariffs on certain stock options, according to the exchange's executive director of traded options, Mark Beddis.
Traded options reached a record high volume of 53,766 contracts on January 23, while the volume of open interest contracts reached a record high of more than 200,000 last week.
'This year the option market has had a very good start,' he said.
'Last year the average daily turnover of stock options was about 5,100 contracts, but this year it traded more than 7,000 contracts per day.' Mr Beddis said the increased trading volume was linked to increased volume on the listed securities market, but also was driven by the recent reduction in tariffs on three key option contracts.
Prior to the reduction, all options contracts incurred a $5 tariff - similar to the transaction levy on shares.
'The tariff is relatively high when compared with the premium carried by the stock options of Hang Seng Bank, Hopewell and Hongkong Telecom, which have a low premium value,' Mr Beddis said.
'This discouraged investors.' The stock exchange decided in December last year to reduce the tariff from $5 to $1 on the three low-value option contracts.
Mr Beddis said there was no trading for Hang Seng stock options contracts before the tariff cuts.
After the reduction, Hang Seng stock options hit a record volume and had an open interest volume of 45,000 contracts early this month.
Mr Beddis said the exchange was not likely to cut tariffs on other option contracts as they had a higher premium and the tariff was not regarded as expensive.
'We have compared Hong Kong with the other overseas markets and our trading costs for stock options are not particularly high in comparison,' he said.
'There is no pressure for the exchange to further reduce trading costs on options.' Mr Beddis said another reason for the increased trading was because retail investors were more familiar with the products.
'Retail investors are more active in the option market than before,' he said.
'About 35 to 40 per cent of all option trading is done by retail investors, which is higher than the 20 per cent when exchange-traded options first launched in 1995.'