A dozen investment banks are thought to have lined up to issue derivative warrants based on new rules which became effective yesterday. The rush to market aims to meet expected pent-up demand for such instruments after local banks halted new warrant issues last June, anticipating the new regulations which were announced late last month. 'I expect a pent-up demand because there has not been any new issue of warrants in the market for almost six months,' said Eddie Tam Sun-keung, a director at investment bank Credit Lyonnais. In June the Securities and Futures Commission announced tough issuance rules had encouraged brokers to fabricate subscription figures. The rules required 85 per cent of covered warrant issues to be subscribed before issuance. To get around this, brokers were arranging for connected parties to take up warrants on the understanding that they could later sell them back. The number of warrants being traded in Hong Kong shrank to 58 at the start of this month from nearly 300 at the end of last year. And, among those existing 58 warrants, 36 expire this month. Hong Kong Exchanges and Clearing's new rules lower the subscription requirement and create a formal market-making system. Mr Tam said Credit Lyonnais had already registered an application with HKEx to issue warrants based on the new rules. He estimated dozens of other formerly active players - such as KBC Financial Products - had done the same. Yesterday, the company announced it had already named four brokerages - CASH Financial Services Group, Core Pacific-Yamaichi, DBS Vickers Securities and Sung Hung Kai Financial Group - as market makers for its warrants. Instead of appointing external firms, UBS Warburg's director Christopher Chau said the bank would use its own brokerage arm to provide liquidity for the warrants. It had already applied to issue covered warrants - allowing investors to make a leveraged bet on the direction of the underlying stock, index or currency.