Demand in Hong Kong for a recently introduced derivative product, callable bull bear contracts, has surged since their launch in June, with their average daily turnover growing ninefold. The contracts, which track the performance of underlying stocks on which they are written, allow investors to bet on either upside or downside price movements in the underlying assets. Average daily turnover for the derivative jumped to HK$128 million for the first three weeks of this month from HK$13.6 million in June, Reuters data shows. Brokers believe the contracts will prove increasingly popular among retail investors as they are similar to warrants but simpler because the value does not change as much in relation to the underlying stock movements. Derivative warrants allow the holder to buy or sell a specific amount of equities or other financial instruments from an issuer at a set price and time. 'Many investors still do not fully understand [the contracts],' said Johnny Yu, the director of equity risk management with UBS Securities Asia, the biggest issuer of the product by turnover in Hong Kong. 'But their turnover is likely to grow at a steady pace once investors become more familiar with them.' Their average daily turnover accounted for only HK$70.9 million, 0.28 per cent of Hong Kong's equity market average daily turnover in the 75 trading days to September 22. The equivalent daily turnover of derivative warrants accounted for more than 25 per cent, or HK$6.46 billion, of the equity market. The paper is typically issued with a fixed expiration date, but the contracts will be called and the life will end immediately when the price of the underlying asset reaches a level known as the 'call price'. If that happens, investors may lose part of their original investment, but there will be no need to make any additional payments. A total of 39 such contracts have been issued since the product was introduced on June 12, of which five have been called. There are five issuers, compared with 18 issuers of derivative warrants.
