Price distortions and sales incentives are targeted to reduce market volatility
The stock exchange has called on the securities watchdog to review its rules for a form of investment suspected of contributing to market turmoil that sent the Hang Seng Index plunging 300 points early last month.
Hong Kong Exchanges and Clearing (HKEx) has expressed concern about practices in the warrant market that it said could contribute to, or be seen as, market manipulation.
The heavily traded warrant market, which can account for as much as 25 per cent of total exchange turnover, is already the subject of a market manipulation investigation by the Securities and Futures Commission (SFC).
Warrants, which give investors the right to buy or sell an underlying security at a fixed price, is one of the so-called derivative products some see as the market equivalent of exotic bets at the Jockey Club.
In its own review issued last night, HKEx noted concerns about two practices:
'Wash sales' - in which investment banks sell warrants to brokers at a discount or offers them incentives such as commission rebates.