New Greater China Warrant listings as 2011 activity surges

• Total traded value in SGX structured warrants jumped 29% year-on-year to $7.3 billion in 2011.

• This jump in value was led by warrants on foreign indices, in particular the Hang Seng Index, which accounted for 65% of the turnover compared to 51% in 2010.

• BNP Paribas will be listing today structured warrants on Hang Seng China Enterprise Index (HSCEI) and several Hong Kong-listed stocks – China Construction Bank, China Life Insurance, HSBC and Sands China.

Demand for structured warrants grew significantly in 2011. Total traded value in SGX structured warrants jumped 29% year-on-year to $7.3 billion over the year. Contributing to the growth was demand for put warrants which accounted for 33% of the turnover compared to 25% in 2010.

Investors also actively traded warrants on foreign indices – in particular the Hang Seng Index (HSI) – which represented 65% of the market up from 51% the year before. Last year these HSI warrants attracted significant interest from investors seeking exposure to the short-term or even intra-day index volatility.

The monthly SGX Structured Warrants Trading Summary provides more details on the warrants market, including the most active warrants as well as new issues.  The December report is available here.

By way of introduction, structured warrants offer investors a marketplace in which they may leverage their views of the upside or downside price movement of an underlying stock or index. For example, investors may purchase call warrants to capitalize on a firmer market price without committing full funds. Investors may also purchase put warrants to participate or hedge any price decline.

Unlike investors who borrow stock to short-sell or short derivatives (such as futures, options or CFDs), warrants investors are not subject to margin requirements and do not risk more than their initial investment. Structured warrants are categorised as Specified Investment Products.

In terms of the relationship between the underlying index and the associated structured warrant, consider an example from Monday 9 January where the Hang Seng Index rose 1.5% or more than 200 points. The table below shows the three most actively traded HSI call warrants on SGX that day and the percentage returns available to an investor assuming the investor had bought the respective warrant the previous trading day 4pm and sold the warrant at 4pm on 9 January. In contrast, the HSI put warrants declined in value with the appreciation of the HSI.

To enhance liquidity in their warrants, issuers appoint designated market-makers to provide continuous bid and offer prices during the underlying market trading hours. The maximum spread and minimum volume of their quotations are stated in the listing documents of the warrants.

BNP’s New Listings

Complementing the current suite of structured warrants on HSI, BNP Paribas will be listing on SGX today structured warrants on Hang Seng China Enterprise Index (HSCEI) and several Hong Kong-listed stocks – China Construction Bank, China Life Insurance, HSBC and Sands China. The warrants are denominated in SGD and other terms of the warrants are stated in the table below.

The following table shows the 30-day historical price volatility and closing price of the above underlying compared to HSI and STI as of 30 December 2011.

*Real-time price information of the underlying is also available on HK data vendors such as aastocks and etnet

**Source: Bloomberg

HSCEI tracks the performance of the largest and most liquid mainland China enterprises with H-share listings in Hong Kong. Based on the index provider’s factsheet, there are 40 constituents in HSCEI covering 91% of the market capitalization of all H shares listed in Hong Kong. The top 10 constituents comprises 68.66% of the index and are set out below.

The new structured warrants on SGX are based on the underlying of the following corporates.

• China Construction Bank (939 HK) is China’s second largest bank by assets and market capitalisation.
• China Life Insurance (2628 HK) is the largest commercial insurance company in China with business covering life insurance, property & casualty insurance, pension plans, asset management etc. Their life premium income accounted for 37.2% of the Mainland's life market share in 2010.
• HSBC (5 HK) is the largest-weighted constituent of the HK benchmark HSI as well as third highest-weighted constituent of the London FTSE 100.
• Sands China (1928 HK), a subsidiary of Las Vegas Sands Corp, is the developer of several integrated resorts in Macau including The Venetian Macao, The Sands Macao and The Plaza Macao.

For more information on the warrants, please refer BNP Paribas’ website: http://www.bnppwarrants.com.sg

Seminars & Resources

Investors can learn more about structured warrants from industry experts through these complimentary seminars:

The Daily Warrants Charter (每日权证图表) provides technical analysis on market indices and Singapore stocks, featuring selected structured warrants to play bullish or bearish trends. This daily report will give beginner and advanced investors a professional and independent view to capitalise on market opportunities based on their investment horizon and risk appetite. Powered by global independent research firm Trading Central, this service is available free of charge. Click here to sign up for the English or Chinese version.

Specified Investment Products

As part of the Monetary Authority of Singapore’s (MAS) initiative to introduce stronger measures and enhance requirements to further safeguard the interests of individual investors, Structured Warrants have been categorised as Specified Investment Products (SIPs).

SGX SIPs have structures, features and risks that may be more complex in nature. The MAS now requires broking firms to ascertain whether an individual investor has the relevant knowledge and experience to understand the risks and features of SIPs before allowing the individual to open an account to trade SIPs listed on both securities and derivatives markets.

SGX has introduced two online initiatives, a Customer Account Review Module and an Online Education programme, to support individual investors in their understanding and trading of SIPs listed on SGX. Click here to access these initiatives.

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