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Enoch Yiu

The Hong Kong Futures Exchange may replace existing Hang Seng Index futures with Hang Seng 100 Index futures at the end of the year.

 Existing futures track the performance of the 33-stock Hang Seng Index, representing about 70 per cent of Hong Kong's market capitalisation.

 The Hang Seng 100 Index launched on April 20 comprises the top 100 companies by capitalisation over a 12-month period and the highest aggregate turnover over 24 months.

 The futures exchange last month signed a licensing agreement with index compiler HSI Services that allows it to launch futures and options on the new Hang Seng 100 Index.

 Exchange chairman Frank Wong Kong-shing said the exchange would release a consultation paper to broker members on a number of options for the launch of Hang Seng 100 Index futures.

 The first option involves Hang Seng 100 Index products traded on the electronic trading system, while existing Hang Seng Index futures and options would continue to be traded by open outcry, Mr Wong said.

 The second involved both indices' futures and options traded by open outcry this year before migrating to electronic trading next year.

 The most controversial option is believed to be the third, that Hang Seng 100 Index futures and options replace existing Hang Seng Index futures and options.

 'The exchange has checked that the Hang Seng Index 100 performs in line with the existing Hang Seng Index,' Mr Wong said.

 'It would not hurt the consistency of the index futures to replace them.'  Market sources said the proposal might encounter criticism as existing Hang Seng Index futures were easy to manipulate while the Hang Seng 100 Index, which has a wider coverage, would be more difficult to manipulate.

 A futures broker, who declined to be named, said replacing the existing index with the new benchmark would be 'foolish and risky'.

 'The existing Hang Seng Index is the benchmark of the local stock market, while the Hang Seng 100 Index has just been launched,' he said.

 'It is too risky to use a new index product to replace the existing Hang Seng Index futures.

 'The exchange does not know whether investors want to trade Hang Seng 100 Index futures.

 'I think the exchange should keep both indices' futures and options traded at the same time.'  ING Futures and Options (Hong Kong) senior managing director Fred Hochberger said clients had expressed no great interest to trade the Hang Seng 100 Index futures and options at the moment.

 'We would need to wait for the exchange to give more details of the Hang Seng 100 Index futures before we would know whether this product would attract the investors,' Mr Hochberger said.



HSI board may be replaced by HS100 Index