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HKEx: Liquidity Providers To Be Introduced Under Amended Derivative Warrant Rules

Date 25/01/2002

Issuers are required to appoint Liquidity Providers (LPs) for derivative warrants listed on the Stock Exchange of Hong Kong Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), under amendments to the Listing Rules that became effective 10 December 2001.

LPs must be Stock Exchange Participants, and they will be identified in the listing document issued in connection with the derivative warrant issue and the announcement published in newspapers the day after the derivative warrant issue is launched. A derivative warrant issuer may appoint different LPs for different warrant issues. However, for each derivative warrant issue there can only be one LP. An LP can act for more than one warrant issuer and for more than one warrant issue.

The Stock Exchange will permit LPs to fulfil their obligation to provide liquidity by means of continuous quotes or quote request, with the chosen method stated in the listing document.

Under continuous quotes, bids and offers for an issue will be posted continuously on the AMS/3, the Third Generation Automatic Order Matching and Execution System. The bids and offers should be for a minimum of ten board lots of the derivative warrant issue.

Under the quote request system, a telephone number that investors can call for a price will be displayed on the derivative warrant's stock page. When an LP receives a quote request it will be expected to respond by entering a buy and sell order for a minimum of ten board lots of the derivative warrant into the AMS/3 trading system. The expected spread between bid and offer prices must be specified in the derivative warrant issue's listing document.

The circumstances under which liquidity will and will not be provided will be set out in the derivative warrant issue's listing document. In general, the Stock Exchange requires liquidity to be provided for derivative warrant issues from five minutes after a market session opens until it closes. Liquidity will not be provided when the security underlying a derivative warrant is suspended because the Listing Rules provide that under these circumstances trading in the warrant will also be suspended. When an issuer has no derivative warrants available for sale the LP will only quote bid prices for the derivative warrant. When the fair value of a derivative warrant is less than $0.01 LPs will generally not quote bid prices for an issue. Liquidity will generally not be provided during fast markets or during the five business days prior to the expiry of a derivative warrant.

Investors should be aware that the level of service provided by LPs may vary.