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Home › Warrants › Hong Kong listed structured products market - Frequently asked questions › Liquidity provision

Liquidity provision

4.1 What is liquidity and why is it relevant to trading in structured products?

A liquid product has a tradable market with tight bid and ask prices and sufficient size, in which there are opportunities to buy and sell structured products. The provision of liquidity is an important feature of structured products because it allows investors to buy and sell structured products that may otherwise be illiquid (that is, have insufficient supply or demand).

Most structured products do not have public holdings on their first listing dates. Issuers may provide liquidity in respect of their products through a designated liquidity agent (called a “liquidity provider”). In Hong Kong, liquidity providers are commonly known as “market makers”. Each issuer must appoint one liquidity provider, who must be an Exchange participant, for each of its products.

4.2 What is the role of a liquidity provider?

A liquidity provider provides quotations for a particular structured product to support a tradable environment for that product. Such quotations take into account the prevailing market conditions affecting the underlying asset, such as hedging costs and liquidity, spread and volatility of the underlying. Liquidity providers provide liquidity by inputting orders into the trading system of the Exchange when they receive “quote requests”. They do so according to the committed service levels as set out in the relevant listing document. These standards typically include:

  1. the maximum response time – i.e. the maximum time it will take to submit a pair of quotes after a request is received;
  2. the maximum spread between the bid and ask prices;
  3. the minimum quote size;
  4. the minimum holding time for the quotes; and
  5. situations in which a quote will not be provided.

Under certain circumstances, liquidity providers are required to provide “active quotes” (that is, even where no request has been submitted by investors) by actively inputting orders into the Exchange’s trading system (see FAQs 4.21-4.36).

4.3 How to identify liquidity provider quotes?

Each liquidity provider is currently identified by a 4-digit broker ID code of 95XX, 96XX or 97XX. The relevant listing documents of an issuer set out the exact obligations of its liquidity provider.

4.4 Why does the liquidity provider sometimes become less active in providing quote?

In circumstances where the outstanding quantity of a structured product in the market increases, the liquidity provider may be less active in providing quotes for such structured product. This is because the key role of a liquidity provider is to facilitate liquidity when there is limited or no market liquidity on the structured product (such as when the products are newly listed on the Exchange with limited or no trading by market participants or investors) and to support a tradable environment for the structured product. If a structured product is not eligible for active quotes due to the fact that there is more than 50% of its aggregate number outstanding in the market, then there may not be any active quote from the liquidity provider. You can find out the outstanding quantity of structured product as of the previous trading day on the HKEX’s website.

Where the number of market participants for a particular product grows, the “market force” increases, and the product becomes less dependent on the liquidity provider as the sole source of liquidity. By implication, the role of the liquidity provider becomes less important when there is a higher number of particular structured product outstanding in the market because this means there are more investors trading in the product, leading to a natural market.

4.5 Does the liquidity provider need to maintain the price for a product at a particular level?

No. Liquidity providers are not required to support prices of structured products. In practice, like other market participants, a liquidity provider is free to buy and sell at any price.

4.6 How many liquidity providers can an issuer appoint for each structured product in issue?

Each series of structured product will have only one liquidity provider appointed for such series.

4.7 How do I get the liquidity provider’s information for a structured product?

You can obtain the liquidity provider’s name and contact details in two ways:

  1. Visit the HKEX’s website:

    The designated HKEX’s website lists all the liquidity providers for all structured products listed on the Exchange.

  2. Check the relevant listing documents of the structured product.

4.8 How can I request prices from a liquidity provider?

Simply contact the liquidity provider directly during trading hours on a trading day at its designated phone number. See FAQ 4.7 about where to find the liquidity provider’s contact details.

4.9 What factors affect the liquidity of a structured product, and the way the liquidity provider provides liquidity?

Through the liquidity provider, the issuer takes into account the prevailing market conditions affecting the underlying asset (e.g. hedging costs and liquidity, spread and volatility of the underlying) in the quotations provided to the market.

4.10 Do I have to trade against the liquidity provider’s bid or ask price?

Not necessarily. Trading structured products is similar to trading stocks listed on the Exchange. Any investor’s bid or ask price may be accepted and traded upon by other investors. You may also place orders just like trading in listed stocks. However, there may not be sufficient interest in trading such structured products.

4.11 If the appointed liquidity provider is no longer an Exchange participant, can that liquidity provider continue to provide liquidity? Is an issuer required to appoint another liquidity provider if the existing liquidity provider is disqualified?

If the appointed liquidity provider is no longer an Exchange participant, it cannot continue to provide liquidity. The issuer must appoint another liquidity provider in its place.

4.12 What are the liquidity provision standards with which liquidity providers are required to comply?

The Exchange has set out the minimum service levels for liquidity provision in the Product Sheets. Issuers are required to specify the minimum service levels in their listing documents and ensure that they comply with the minimum service levels as published by the Exchange from time to time. Liquidity must be provided in respect of their structured products in accordance with these minimum service levels.

4.13 What is “quote request”?

Quote request is one of the methods in which liquidity is provided. It refers to the provision of liquidity by entering orders into the Exchange’s trading system in response to an investor’s request.

Quote request standards are the minimum service level for all structured products applicable to all possible market conditions (regardless of the underlying assets), subject to certain exemptions set out in the listing documents.

4.14 What are the tightened minimum service levels for quote requests?

The following table summarises the current service levels.

Standard From 31 October 2012 (Note Inline Warrant is a new product after 31 October 2012)
Maximum bid-ask spread for standard warrants and CBBCs 20 spreads
Maximum bid-ask spread for inline warrants HKD 0.08
Maximum response time 10 minutes
Minimum size 20 board lots
Minimum holding time 5 minutes*
*Issuers can refresh the quote to reflect changes in the price of the underlying asset and the prevailing market conditions

4.15 What does a “minimum holding time of 5 minutes” mean?

When a liquidity provider responds to your quote request, it must continue to hold a quotation (which effectively means it must continue to make available an offer to trade for investors) for at least 5 minutes after it is posted on the Exchange’s trading system upon your request. This means that you can accept the quote (that is, agree to trade on that basis) within such 5 minutes, if it has not lapsed (see below).

However, it is important to be aware that even within those 5 minutes, the liquidity provider may need to adjust the bid and ask prices if the prevailing market circumstances or the price of the underlying asset changes. If that occurs, the liquidity provider will “refresh its quote” – that is, an adjusted quote will be posted on the Exchange’s trading system.

More importantly, if a liquidity provider’s quote is being traded by another investor within the 5 minute holding time and thus the quotation lapses, you need to submit another quote request if you wish to have a quote from the liquidity provider to trade.

4.16 Under what circumstances is the liquidity provider not required to provide quote upon request?

The liquidity provider is not obliged to provide quote upon request in ten key situations:

  1. during a pre-opening session or a closing auction session (if applicable);
  2. during the first 5 minutes of each morning session or the first 5 minutes after trading commences for the first time on a trading day;
  3. when the structured product or any underlying asset is suspended from trading for any reason;
  4. when there is no structured product available for market making activities;
  5. if the theoretical value of the structured product is less than 0.01 unit of trading currency (e.g. RMB$0.01, HK$0.01 or US$0.01);
  6. in the case of CBBCs only, upon the occurrence of a mandatory call event;
  7. in the case of inline warrants only, if the theoretical value of the inline warrant is at HK$1.0, the liquidity provider must at least provide a bid price;
  8. where the underlying asset is an index, if there occurs or exists any suspension of, or limitation imposed on, trading of options or futures contracts relating to the index or if the index level is not calculated or published as scheduled for any reason;
  9. when there are operational and technical problems beyond the control of the liquidity provider that hinder the liquidity provider’s ability to provide liquidity; or
  10. if there is a “fast market” which materially affects the issuer’s hedging ability (see FAQ 4.18).

These circumstances are stated in the relevant listing documents.

The following FAQs also explain some of these situations in more details.

4.17 What happens to my structured product if its underlying asset is suspended from trading, including if the suspension continues until expiry?

If trading in the underlying asset of a structured product is suspended, trading in such structured product will also be suspended until trading in the underlying asset resumes. Investors must understand and take into account the risks arising from a loss of time value during a suspension period.

If trading in the underlying asset remains suspended at the expiry of the structured products, the issuer will determine the settlement price in good faith and in a commercially reasonable manner. The cash settlement amount may be substantially less than the investor’s initial investment and may be zero.

4.18 What do you mean by “fast market”?

“Fast market” refers to situations where the financial markets experience exceptional price movements and high volatility over relatively short periods of time, which can result in a sudden increase in risk and uncertainty, possibly affecting issuers’ hedging abilities.

For example, these situations may include:

  1. financial uncertainty – exceptionally volatile market conditions linked to financial uncertainty, for example, the period following Lehman Brothers’ bankruptcy in September 2008 and the “flash crash” of 6 May 2010, when the Dow Jones Industrial Average suffered its worst intra-day point loss; and
  2. underlying uncertainty – the occurrence of events causing the intraday market price of the underlying stock or index to experience significant fluctuations and/or a material reduction in liquidity of the underlying, for example, Japan’s earthquake on 11 March 2011 which resulted in a drastic fall in Nikkei index in the immediately following period and fluctuation in prices of the related structured products.

These are just possible examples of fast market events. Depending on circumstances, some market events may trigger a VCM which may possibly result in a fast market.

It is generally more difficult to provide quotes momentarily when the price of the underlying asset is changing rapidly within a short period of time.

4.19 What will an issuer do when there is a system failure leading to a service interruption?

System difficulties and failures can affect the ability of a liquidity provider to provide quotes within the service level set out in relevant listing documents or provide any quote at all.

A system failure will be notified to the market as soon as practicable and shall be fixed within the shortest possible time.

4.20 What will happen to Quote Requests for the structured product, on a day when the underlying was subject to a VCM?

The issuer will commit to Quote Request obligations during the day, including during the cooling off period, unless an exemption is obtained for Quote Request (see FAQ 4.16(j) which may relate to a VCM event).

4.21 What are “active quotes”?

Active quotes refer to the provision of liquidity where a liquidity provider actively inputs orders into the Exchange’s trading system. Issuers will, without any need for a request from an investor, provide active quotes on structured products as a service to investors. Active quotes save investors the inconvenience of having to request quotes and promote transparency. For further information, please refer to “Liquidity Provision Requirements – Active quote” of the Product Sheets.

4.22 Does active quote mean there is continuous quotation available throughout a trading day?

Generally speaking, yes. However, active quotes may not strictly be “continuous” because liquidity providers may need to pause the provision of active quotes for a reasonably short period of time to adjust quote parameters in response to market conditions or operational needs.

Roughly speaking, active quotes should be provided for at least 90% of the time of a trading day for structured products that meet the criteria for active quotes and each pause should not exceed 10 minutes.

4.23 Is there a minimum holding time for active quotes?

No. Unlike quote request, there is no minimum holding time for active quotes.

4.24 Under what circumstances are issuers required to provide active quotes?

Issuers are only required to provide active quotes during the “Qualified Period”. This means the period when:

  1. the criteria set out in FAQ 4.25 are met; and
  2. none of the exemptions set out in FAQ 4.16 applies.

4.25 What are the criteria for active quotes?

Issuers are only committed to providing active quotes for structured products that satisfy the following criteria (as measured on a real time basis):

  1. an active underlying (see FAQ 4.27);
  2. 50% or less of their aggregate number outstanding in the market;
  3. for standard warrants and inline warrants, remaining time to expiry of at least 30 calendar days (for instance, if the expiry date of the warrant is 2 January 2013, active quote should be provided by the liquidity provider up to and inclusive of 3 December 2012);
  4. for standard warrants only, moneyness between 20% in-the-money and 20% out-of-the-money. “Moneyness” is derived by comparing the spot price or level of the underlying and the exercise price or strike level;
  5. for inline warrants only, from 20% below the lower strike price or level to 20% above the upper strike price or level; and
  6. for CBBCs only, the prevailing price of the underlying stock falls outside 2% of the call price or the prevailing level of the underlying index falls outside 1% of the call level. This “qualified range” is derived by comparing the spot price or level of the underlying and the call price or level.

4.26 Why do issuers only provide active quotes under the criteria set out in FAQ 4.25?

A liquidity provider’s quotation for structured products must be based on the actual market conditions. There are three key considerations for an issuer when deciding if active quotes can be provided:

  1. if the structured product is suitable in terms of demand and risk management;
  2. if the market conditions affecting the underlying asset, such as its liquidity and the availability of hedging, permit active quotations; and
  3. the prevailing market conditions affecting the structured product itself, such as supply and demand patterns.

4.27 How do I know if an underlying asset of a structured product is an “active underlying”?

An “active underlying” means local indices (such as the Hang Seng Index and Hang Seng China Enterprises Index) and stocks listed on the Exchange which are eligible for CBBC issuance. These represent stocks with the highest turnover in the market.

CBBC eligible list is generally updated on a quarterly basis and posted on HKEX’s website.

Investors should pay attention to the change in the eligible underlying and the effective date of the eligible list. An underlying previously eligible for CBBC issuance and is removed from the current eligible list will no longer be an “active underlying”. As a result, structured products with that particular underlying will cease to be subject to active quotes commencing on the effective date of the eligible list.

On the other hand, a newly added eligible underlying will become an “active underlying” and will be subject to active quotes commencing on the effective date of the eligible list (assuming the criteria for active quotes (see FAQ 4.25) are all met).

4.28 Where can I find the list of structured products that are subject to active quotes?

If you want to know whether a particular structured product is eligible for active quotes at any particular time on a trading day, you may contact the issuer to ask if such structured product meets the active quote criteria.

The list of structured products which were eligible for active quotes based on market data as of close of trading on a trading day will be included in each issuer’s daily trading summary published on the next trading day. If you wish to use such market data as a general reference point, please note that such data of structured products is historical.

Such information included in an issuer’s daily trading summary will only show historic data as of the close of trading on the previous trading day for general guidance only. You must not assume that such information is accurate, complete or up-to-date. You should not rely on such historic list as an indication that a structured product listed in such daily trading summary actually meets the active quote criteria at any other time.

4.29 Why doesn’t the issuer provide active quotes for standard warrants and inline warrants with less than 30 calendar days remaining term?

The time value of some standard warrants, especially those at-the-money, may fall rapidly when they are close to expiry, making it more difficult to provide active quotes. For an inline warrant, the sensitivity to the underlying price or level movement of the inline warrant becomes higher towards expiry and when the underlying price is close to the upper or lower strike price or level, making it more difficult to provide active quotes. Active quotes are therefore only able to be provided for a standard warrant the value of which is not materially affected by the erosion of its time value and for an inline warrant the value of which is not highly sensitive to the underlying price or level movement.

4.30 What is “moneyness” for standard warrants? How is it calculated? Why does the issuer provide active quotes for standard warrants and inline warrants with ±20% moneyness?

“Moneyness” describes where the standard warrant’s exercise price or strike level is in relation to the price or level of the underlying asset.

In the case of a standard call warrant, if the exercise price or strike level is:

  1. above the price or level of the underlying asset, the standard warrant is said to be “out-of-the-money”; or
  2. below the price or level of the underlying asset, the standard warrant is said to be “in-the-money”.

Numerically, moneyness of a standard call warrant is calculated by reference to the difference between the underlying asset’s price or level and the exercise price or strike level, divided by the underlying asset’s price or level, as illustrated in the table below.

Exercise price Price of underlying asset % in-the-money/out-of-the-money
HK$80 HK$100 (HK$100 - HK$80) / HK$100 x 100% = +20% (i.e. 20% in-the-money)
HK$120 HK$100 (HK$100 - HK$120) / HK$100 x 100% = -20% (i.e. 20% out-of-the-money)

In the case of a standard put warrant, if the exercise price or strike level is:

  1. below the price or level of the underlying asset, the standard warrant is said to be “out-of-the-money”; or
  2. above the price or level of the underlying asset, the standard warrant is said to be “in-the-money”.

Similar to a standard call warrant, the moneyness of a standard put warrant is calculated by reference to the difference between the exercise price or strike level and the underlying asset’s price or level, divided by the underlying asset’s price or level, as illustrated in the table below.

Exercise price Price of underlying asset % in-the-money/out-of-the-money
HK$120 HK$100 (HK$120 - HK$100) / HK$100 x 100% = +20% (i.e. 20% in-the-money)
HK$80 HK$100 (HK$80 - HK$100) / HK$100 x 100% = -20% (i.e. 20% out-of-the-money)

Structured products which are either deep in, or out, of-the-money generally have lower investor interest. Accordingly, issuers will only provide active quotes for standard warrants with ±20% moneyness.

4.31 Under what circumstances will active quotes be paused or affected temporarily?

Active quotes may not be continuous because liquidity providers may need time to pause the provision of active quotes for a reasonably short period of time to adjust quote parameters in response to market conditions or operational needs.

Common causes of these short interruptions include the following:

  1. a sudden or material change in the trading pattern of the structured product, such as where a relatively inactive structured product suddenly becomes active;
  2. news is published that might have an impact on the market price of the underlying. For example, a change in forecast earnings or proposed dividends;
  3. the underlying or the stock market experiences exceptional price movement or high volatility over a short period of time which materially affects the liquidity provider’s ability to source a hedge or unwind an existing hedge (see FAQ 4.18);
  4. the underlying stock trades at a wider bid-ask spread than normal which causes the spread in the structured product to exceed the maximum level specified in “Liquidity Provision Requirements – Active quote” of the Product Sheets;
  5. the liquidity provider reasonably suspects any potential mispricing, system issue or error;
  6. the liquidity provider reasonably suspects abnormal trading in respect of the underlying;
  7. operational and technical problems such as computer network disconnection, loss of data feed, loss of connectivity with the Exchange or technical issues which arise in the issuer’s computer system; or
  8. the liquidity provider will suffer, or expects to suffer, a financial risk due to frequency of trades and size of trades in relation to its structured product.

4.32 Under what circumstances will active quotes be discontinued?

An issuer may stop providing active quotes for a structured product on a trading day if that structured product no longer meets the criteria stated in FAQ 4.25. Individual issuers may voluntarily decide to keep providing active quotes, or may switch to providing liquidity on a quote request basis in accordance with the minimum liquidity service levels.

4.33 What is the spread requirement for active quotes?

The bid and ask spreads for active quote are tighter than the maximum spreads prescribed for quote request. These tightened spreads are as follows:

Product Local index underlying Actively traded stock underlying
Standard warrant 5 spreads 10 spreads
CBBC 10 spreads 15 spreads
Inline warrant HKD 0.02 HKD 0.04

4.34 Why is there a different active quote liquidity service standard (i) between standard warrants and CBBCs and (ii) for structured products between local index and actively traded stock?

Spreads for CBBCs are wider than those for standard warrants because the price of CBBCs is generally more sensitive to movements in the value of the underlying asset, meaning that it is more costly for the issuer to hedge that underlying asset.

Spreads for structured products over an actively traded stock are wider than those for structured products over a local index because of the higher liquidity to hedge a local index and it is generally more costly (e.g. stamp duties, bid-ask spread, etc.) to hedge the actively traded stock underlying.

4.35 How will the provision of active quotes be affected for a structured product when the underlying security is subject to VCM?

Investors should be aware that the standards for active quotes described in the Product Sheets are intended to apply to normal market conditions. Provision of active quotes may be affected where there are abnormal or exceptional market conditions.

Quotes provided by liquidity providers necessarily reflect the liquidity of the underlying securities or indices at any given time. If the liquidity of the underlying is impaired by conditions surrounding a VCM event, or by the VCM itself, the liquidity of the structured product may be adversely affected in terms of quote size and spread relative to more normal market conditions.

During the 5-minute cooling off period after triggering of the VCM, where issuers’ hedging ability is materially affected due to the uncertainty in the underlying securities or index, it is possible that the minimum service level for active quotes will not be fulfilled, such as no bid-ask quotations, widening of bid-ask spread and reduction in quote size.

Similarly, after the 5-minute cooling off period, liquidity provision may still be affected if issuers continue to experience hedging difficulties. Under such circumstances, Liquidity Providers may not fulfil the minimum service level for active quotes as described in the Product Sheets.

However, issuers will use best efforts to meet quote request requirements.

4.36 Why may it be more difficult for issuers to provide quotes for CBBCs when the underlying price or level is close to the call price or call level?

When the underlying price or level approaches the call price or call level, the price of a CBBC may fluctuate more sharply. As a result, it may be more difficult for issuers to maintain quotes within the tightened spreads, especially when the underlying stock price is within 2% of the call price, or the underlying index level is within 1% of the call level.

4.37 A liquidity provider has provided quotes with 30 spreads in response to my quote request. Has the liquidity provider breached its obligation to quote within the maximum bid-ask spread set out in the relevant listing document?

Yes, unless the situation falls within any of the circumstances described in FAQ 4.16.

4.38 I made a quote request at 3:15 p.m. with a liquidity provider but it only provided quotes at 3:40 p.m. Has the liquidity provider breached its obligations?

Possibly, it depends on the circumstances. The maximum response time for quote request has been capped at 10 minutes. If the situation falls within any of the circumstances described in FAQ 4.16, then the liquidity provider is not required to provide quotes within 10 minutes.

4.39 I note a liquidity provider provided a quote in response to a quote request which lasted for 3 minutes only. Has the liquidity provider breached its obligation?

Not necessarily. For example, the quote may have been taken by another market participant or one of the circumstances set out in FAQ 4.16 may have arisen.

4.40 I wanted to sell 1,000 board lots of my call warrants and called up the liquidity provider for a quote. Why couldn’t I sell my 1,000 board lots even after I got the quote from the liquidity provider?

The quote size offered by the liquidity provider is limited by the actual liquidity of the relevant hedging vehicle (e.g. the underlying asset or the listed or OTC options linked to the underlying asset). In this case, the liquidity provider may not be able to buy all 1,000 board lots of your call warrants if the liquidity provider cannot unwind such hedging vehicle for all of the 1,000 board lots of your call warrants (for example, because the relevant hedging vehicle is illiquid). The minimum quote size that a liquidity provider is committed to quote is 20 board lots.

4.41 I bought a call warrant with a last reported price (or nominal price) of 0.01 unit of trading currency (e.g. HK$0.01) and that reported price has not moved for a long time. I want to sell my holding in the call warrant. Why can’t I get any quotes from the liquidity provider?

The last reported price (or the nominal price) is not necessarily the same as the warrant’s actual theoretical value. In this case, the most likely reason is that the actual theoretical value of the call warrant is less than 0.01 unit of trading currency. This is one of the circumstances in which a liquidity provider is not required to respond to any quote request.

4.42 I submitted a quote request to a liquidity provider who responded by saying that there are existing liquidity provider quotes already in the market. Has the liquidity provider breached its obligations to respond to my request?

No. If an existing quote that complies with the minimum service levels is available, the liquidity provider will be deemed to have complied with its liquidity obligations.

4.43 I asked a liquidity provider to reduce its bid-ask spread which has already met minimum service levels for quote requests. Is the liquidity provider obliged to provide a tighter spread?

The liquidity provider is only required to commit to the minimum service level. If your request for a bid-ask spread reduction is a tighter standard than the minimum service level, the liquidity provider is not obliged, and may not be able, to provide a tighter spread. It is because the bid-ask spread may change from time to time or even widen according to the prevailing market conditions affecting the underlying asset (such as hedging costs and liquidity, spread and volatility of the underlying).

4.44 Should I still make a quote request for structured products if the liquidity provider is providing active quotes for such products?

If the liquidity provider has provided active quotes that comply with the spread requirement for active quotes as prescribed in the Product Sheets, it should not be necessary to make a separate quote request for such products as the bid and ask spreads for active quotes are tighter than the maximum spreads prescribed for quote request.

4.45 I made a quote request for a call warrant over a stock. The liquidity provider claimed that it was exempted from providing quotes due to a significant move in the Hang Seng Index or the overall market. Is the liquidity provider justified to claim an exemption from providing quotes?

The liquidity provider is exempted from providing liquidity when there is a “fast market” which materially affects the issuer’s hedging ability. Please refer to FAQ 4.18 on what is meant by “fast market”.

A significant move in the Hang Seng Index or the overall market may or may not result in exceptional price movement and high volatility of the underlying stock. In this case, the liquidity provider may need to demonstrate to the Exchange that its hedging ability has been materially affected by exceptional price movement during a short period of time.

4.46 I made a quote request on an index inline warrant. I noticed that the liquidity provider only provided a bid quote at HK$0.93 and no ask quote was provided. Why did the liquidity provider not provide any ask quote?

In this case, the inline warrant may be worth at HK$1. The liquidity provider is not required to provide an ask quote because investors are not encouraged to buy the inline warrant at or higher than HK$1 due to the maximum payoff at expiry of HK$1.

4.47 I hold a call warrant over a stock, which is due to expire in 15 days. I want to sell it before it expires. Why is there no active quote for it?

Time to maturity is one of the criteria for active quotes. As your call warrant has a maturity of less than 30 calendar days, it does not meet the active quote criteria set out in the Product Sheets. In this case, you could contact the issuer to make a quote request.

4.48 I hold a call warrant over an active underlying stock with an exercise price of HK$45. The spot price of the underlying stock is HK$50. Is the call warrant eligible for active quotes?

Issuers provide active quotes for call warrants with moneyness between 20% in-the-money and 20% out-of-the-money. Where the spot price of the underlying stock is HK$50, an exercise price of the call warrant between HK$40 (+20%) and HK$60 (-20%) meets the ±20% moneyness criteria. In this case, your call warrant should be eligible for active quotes (subject to it meeting the other criteria), as the exercise price of HK$45 falls within the ±20% moneyness range.

4.49 I hold a call warrant over HSI, with a strike level at 22900. The spot level of HSI is 18300. Is my call warrant eligible for active quotes?

Issuers provide active quotes for standard warrants with moneyness between 20% in-the-money and 20% out-of-the-money.

Where the level of the HSI is 18300, call warrants with strike level between 14640 (+20%) and 21960 (-20%) meets the ±20% moneyness criteria. In this case, your call warrant does not fulfil the active quote criteria because the strike level of 22900 falls outside the ±20% moneyness range.

As a result, you could contact the issuer to make a quote request if you want to sell your call warrant.

4.50 I hold an inline warrant linked to a stock underlying with a lower strike price of HK$100 and an upper strike price of $120. The spot price of underlying is now trading at HK$70. Will the issuer provide active quotes for this inline warrant?

No. Because the spot price of Stock X is more than 20% away from the lower strike price of HK$100. Active quote is only available for inline warrants when the underlying stock price is trading within the range of 20% below the lower strike price to 20% above the upper strike price (i.e. from $80 to $144)

4.51 I hold a bull CBBC linked to a stock underlying, with a call price of HK$50. The spot price of the underlying is now trading at HK$52. Will the issuer provide active quotes for this CBBC?

Issuers provide active quotes for bull CBBCs linked to stocks where the spot price of the underlying stock is above 2% of the call price.

Where the call price of a bull CBBC is HK$50, a spot price above HK$51 meets the percentage requirement for the bull CBBC. In this case, your CBBC should be eligible for active quotes (subject to it meeting the other criteria, such as the aggregate number outstanding in the market) since the spot price is above 2% of the call price. You should also note that the bull CBBC would be knocked out when the spot price reaches HK$50.

4.52 I hold a bull CBBC linked to HSI, with a call level of 19000. The spot level of HSI is 19100. Will the issuer provide active quotes for this CBBC?

Issuers provide active quotes for bull CBBCs linked to an index where the spot level of the underlying index is above 1% of the call level.

Where the call level of a bull CBBC is 19000, a spot level above 19190 meets the percentage requirement for the bull CBBC. Your CBBC does not fulfil the active quote criteria because the spot level is less than 1% above the call level. You should also note that the bull CBBC would be knocked out when the spot level reaches 19000. In this case, you could contact the issuer to make a quote request.

4.53 I hold a HSI call warrant which fulfils the active quote criteria prescribed in the Product Sheets. Why there is no active quote provided?

Active quotes will not be provided where one of the exemptions set out under “Liquidity Provision Requirements” of the Product Sheets applies. For example, the liquidity providers need not provide active quotes where:

  1. the theoretical value is less than HK$0.01;
  2. there is a technical failure and operational problems beyond the control of the liquidity provider; or
  3. the underlying asset or the stock market experiences exceptional price movement and high volatility over a short period of time which materially affects the liquidity provider’s hedging ability.

Remember that active quotes are not continuous. You could contact the liquidity provider, if you have any questions about liquidity.

4.54 I noticed that an issuer provides quotes for a call warrant which did not fulfil the active quote criteria. The spread of the quote was wider than the maximum bid-ask spread under the active quote requirement. Did the issuer breach the active quote requirement?

No. An issuer may, at its option, provide active quotes voluntarily. In those circumstances, the issuer is not bound by the specific spread requirements for active quotes as set out in the Product Sheets. However, in this case, the issuer will still need to comply with the spread requirement applicable to quote request in response to a quote request.

4.55 I noticed that no ask quote was provided for a stock inline warrant which is an active quote product while only a bid quote at HK$0.97 was provided by the liquidity provider. Why did the liquidity provider not provide any ask quote?

In this case, the inline warrant may be worth at HK$1. The liquidity provider is not required to provide an ask quote because investors are not encouraged to buy the inline warrant at or higher than HK$1 due to the maximum payoff at expiry of HK$1.

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