A less-than glamorous debut was seen in the turnover of 58 covered warrants at the end of Hong Kong's seven-month issuing drought. The warrants, the first to be issued since new Hong Kong Exchanges and Clearing rules were introduced last month, amassed total turnover of HK$103.33 million. The turnover represented 1.39 per cent of the main board turnover of HK$7.42 billion. Many market-watchers expected a share of more than 2 per cent as strong demand was forecast following the moratorium local investment banks put on new issues in June last year pending the new HKEx regulations. Covered warrants, issued and backed by investment banks, offer the holder the right to buy (call) or sell (put) the underlying stock at a predetermined price before a pre-set expiry date. The instrument had been popular previously among retail investors, because it gave them better leverage to bet on a stock's movement. The new HKEx rules see the scrapping of stricter subscription requirements but introduce a market-making system to ensure sufficient liquidity. Some investment bankers blamed the lower-than-expected turnover on investors' lack of familiarity with the new trading environment. Cheril Lee, a senior vice-president at SG Securities, and Darin Lester, the head of equity derivatives sales at Macquarie Bank, both said it would take time for investors to accustom themselves to the market-making practice. 'We have had many calls from clients asking about how the system works,' Ms Lee said. The practice requires issuers to appoint one market-maker per warrant to give quotes on both ask and bid sides, so as to provide liquidity. William Lee, chief operating officer of SAR-listed brokerage Tai Fook Securities, said investors also seemed to be confused by too many warrants underlying the same stock. 'In the past, the local warrant market was usually driven by a handful of hit plays, and investors simply picked those heavily traded warrants to invest in,' Mr Lee said. However, as the new regulations encouraged more issuers, investors could at the same time be faced with more than 10 warrants underlying the same stock with similar liquidity, he said. Among the 58 warrants that began trading yesterday, 16 underline banking giant HSBC, while 10 underline red-chip heavyweight China Mobile. George Ngan, executive director of KBC Financial, said yesterday's slim turnover was also due to a comparatively small number of warrants being traded in the market. 'The warrant market has still yet to obtain its 'full portfolio',' Mr Ngan said. An active market needed at least 150 to 200 different warrants to be traded. Apart from the new warrants, there were four plays that listed before the seven-month moratorium and had yet to expire. To ensure orderly launches, HKEx deputy chief operating officer Lawrence Fok Kwong-man said the exchange would keep to a listing quota in the next two to three weeks. HKEx would allow a maximum of 100 warrants to be issued each week. About 40 more warrants will be launched this week, while investment banks have already applied for another 30 to be listed next week.