Credit Suisse has launched two call warrants linked to the Alibaba share in Hong Kong yesterday with strike levels of US$88.88 and US$96.88, respectively, which sold HKD800,000 (US$103,137) and closed at US$0.96 and US$0.75.
The Swiss bank also listed a put warrant linked to Alibaba today with a US$68.8 strike price. All three warrants will mature on September 18, 2015.
“The volumes [are in line with] our expectations,” said Ivan Ho, head of Hong Kong warrants and CBB sales at Credit Suisse. “Technology stocks [have high] volatility and many clients are interested in investing in Alibaba stocks.”
Ho said the launch which allows local investors to access this stock listed in the US market was in the pipelines since January when the regulator gave the green light to be used in Hong Kong. However, due to the time difference between two markets, Alibaba linked warrants are not able to hedge right after receiving subscription.
“Due to the time difference, Alibaba stock will start trading after Hong Kong market closes, which has turned away some investors who prefer instant trading,” he said. “We hedge either through Alibaba stocks or options, but the hedging will only take place when the US market opens.”
Ho also said that the bank will use over-the-counter (OTC) options to hedge products once the volumes of the warrants linked to Alibaba pick up.
Alibaba linked warrants are not the first foreign stock to be used as underlyings for warrants launched in Hong Kong. Deutsche Bank launched a number of warrants linked to the Apple share in Hong Kong in 2011.
Currently the five leading warrant providers in the market, UBS, Credit Suisse, Standard Chartered, Societe Generale and JPMorgan, have 70% share of the warrants market.
Citi suspended 107 of its Hong Kong-listed warrants and callable bull bear contracts (CBBCs) at the end of last year as a result of shrinking margins is part of a trend that has seen a number of foreign providers turn their backs on the domestic listed derivatives space.
Other foreign providers retreating from the Hong Kong derivatives listed market include Bank of America Merril Lynch (BAML), Deutsche Bank, Royal Bank of Scotland (RBS), Barclays and Rabobank.
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