A row erupted yesterday between the Stock Exchange of Hong Kong (SEHK) and its Taipei counterpart after the controversial launch in the territory of two call warrants linked to Taiwan's benchmark index. In a statement issued yesterday afternoon, the Taipei exchange expressed 'serious concern and opposition' after trading in the regional derivatives - the first of their kind in the territory - began in Hong Kong during the morning. Taipei threatened legal action against either the SEHK or the two investment banks which issued the call warrants - Peregrine Derivatives and Union Bank of Switzerland (UBS). The SEHK responded last night by saying that similar products issued by a number of financial institutions were listed in Luxembourg. It said that after considering the views of all parties, including legal opinion, it believed the listing of the new products would improve the liquidity of the underlying cash market. The Taipei exchange's assistant manager handling off-shore derivative issues, Dang Maw-lin, said the exchange had never approved any party outside Taiwan to issue call warrants on its benchmark index, known as the Taiwan weighted index. 'The Taiwan index belongs to us. Anyone who wants to issue derivatives on the index has to seek our approval,' he said. Sources said the Taipei exchange had reached a verbal agreement with Peregrine and UBS under which the banks would pay a royalty to the exchange. Neither bank would comment yesterday. The SEHK would not comment on Taipei's assertion that it had not secured prior approval. Mr Dang denied the row was linked to the fact that the Taipei exchange was planning to launch its own trading in regional derivatives in June. The SEHK announced in January it was launching trading in regional derivatives following a six-month study of the issue by its working group on market development. Speaking at yesterday's listing ceremony for the warrants, Secretary for Financial Services Rafael Hui Si-yan said no stamp duty would be imposed on trading in regional derivative warrants and convertible bonds. He said this was an attempt to boost the territory's status as a regional and global financial hub. He said that due to technical problems, a levy would be charged on transactions in the Peregrine and UBS call warrants until a formal document by the treasury department was completed. SEHK chief executive Alec Tsui Yiu-wa said: 'We anticipate that more listings of this type . . . will come to our market when market participants become more familiar with the trading of regional derivatives.' The UBS 1998 call warrant was the market's most sought-after stock yesterday, jumping 12.4 per cent to 38 cents with 188.78 million shares worth $66.01 million traded. Peregrine's 1998 call warrants rose 10.2 per cent to 34.5 cents, with 83.8 million shares worth $428.97 million traded. Mr Tsui said the Government had asked the SEHK two days ago to submit a proposal to lower the transaction levy on general share transactions. 'We'll submit it very soon. Since the transaction levy generates about one third of our income, we're considering ways to boost income such as raising the annual fee on listed companies,' he said.