Published On: Sun, Jul 29th, 2012

HKEx Publishes Guide on Enhancing Regulation of the Listed Structured Products Market

Hong Kong Exchanges and Clearing Limited (HKEx) announced July 27 the publication of its Guide on Enhancing Regulation of the Listed Structured Products Market. The Guide serves to foster high standards across structured products issuers, enhance service levels of liquidity providers and promote the healthy long-term development of Hong Kong’s listed structured products market.

The Guide

The Guide covers a number of regulatory enhancement measures in three main areas: (a) enhancement of issuers’ internal controls and standardisation of listing documents, (b) improvement of liquidity provision standards and (c) management of issuers’ credit risks. The proposed measures are in line with on-going efforts to strengthen protection for investors and support market development.

Industry Principles on Liquidity Provision for Listed Structured Products

The Guide includes the Industry Principles on Liquidity Provision for Listed Structured Products which were developed jointly by a working group of listed structured products issuers, the Securities and Futures Commission and HKEx after extensive discussions.

The Industry Principles were formulated to enhance service levels for investors, in particular, through the introduction of active quote standards for listed structured products with a local index or an actively traded stock as underlying instrument in most market situations. This means in general issuers will proactively provide quotes and save investors from the inconvenience of making quote requests. The bid-offer spreads for active quotes will also be tighter than the current quote request standards.

Meanwhile, the Guide also tightens the liquidity providing obligations for quote requests.

The Guide and the Industry Principles adopt a comprehensive and transparent approach by clearly stating the requirements on structured products issuers, criteria for active quotes, specifications on spread limits and possible scenarios for short interruptions. The clarity facilitates investors’ understanding of the new liquidity provision service standard and provides a clear benchmark for performance measurement. HKEx will monitor the results following the implementation of the Guide and the Industry Principles to identify any other necessary enhancements.

Both the Guide and the Industry Principles are available for viewing on the HKEx website.

Highlights of the key actions under the Guide and the implementation timetable are attached.

Structured products are synthetic products whose investment returns are linked to the performance of the underlying instrument. Derivative warrants and Callable Bull/Bear Contracts, or CBBCs, are the two most popular listed structured products in Hong Kong.

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