WORLD WARRANT MARKETS

Transcription

1 WORLD WARRANT MARKETS Warrant trading is concentrated in a handful of exchanges around the world. The top six exchanges represent 90% of the aggregate warrant turnover of the 18 exchanges that provide statistics on their warrant markets. Hong Kong ranked second after Switzerland. Germany was third. The top three warrant exchanges offer both equity and derivative warrants. In Hong Kong and Germany, derivative warrants contribute the majority of warrant turnover. Foreign warrants contribute little to exchange turnover. Major warrant markets mainly serve their domestic economy. In 1977, the first equity warrant was listed in Hong Kong. The development of the warrant market diversified with the launch of the first derivative warrant in As of 2000, the turnover of warrants in Hong Kong market was HK$167,408 million, representing a rise of 29% from that of Although the development of the warrant market in Hong Kong over the last two decades is well-known, there has been little analysis of how Hong Kong s warrant market has performed so far vis-à-vis its overseas counterparts. 1 This study attempts to explore the competitive positioning of Hong Kong s warrant market vis-à-vis overseas exchanges. 1 In 1997, Research & Planning of SEHK conducted a brief comparison of Hong Kong s warrant market with overseas counterparts in terms of number of warrant issues and turnover in a study of the Hong Kong derivatives warrant market. [WWM.doc] Planning & Research, HKEx

2 1. APPROACH Since members of the International Federation of Stock Exchanges (FIBV) and the Futures Industry Association (FIA) include respectively the major stock and derivatives exchanges in the world, the member lists were examined to identify the target exchanges on which warrants are traded. It was identified that many of the FIBV members have a warrant market whereas most of the leading derivatives exchange members of the FIA do not conduct warrant trading. And also, except for Pacific Stock Exchange, those FIA members known to have warrant markets are also FIBV members. As a result, the 34 FIBV members having warrant markets are chosen as the target exchanges in this study, and efforts were made to obtain their warrant statistics (see Appendix 1). In the case of 18 exchanges, warrant statistics were obtained; these exchanges were included in the analysis. Statistics on the warrant markets are collected from the individual exchanges published materials, or the exchanges websites or via direct enquiry. More detailed analysis is performed on the leading warrant markets, which include Hong Kong, in respect of their turnover performance, listing statistics and market share of warrants and relative shares of different warrant types. 2. LIMITATIONS All the data collected are based on best efforts and may be subject to error or incompleteness. The study is therefore subject to the following limitations: The exchanges under analysis do not include all exchanges that trade warrants. But it is believed that the major ones are included in the analysis, and that the omitted exchanges would not change the top rankings very much. Certain statistics are not available or have incomplete time series from some exchanges. This makes full comparison in certain areas not possible. Some market data such as the market value of the warrants are unavailable. This may limit the scope of analysis achieved: for instance, turnover ratios in warrants cannot be calculated. Statistics compiled by different exchanges may not be on a standardised basis. There are also differences in the use of terms like "equity warrant". The identification of statistics for comparison is made in accordance with our best understanding but may be subject to error. 3. MAJOR FINDINGS 3.1 World ranking by turnover Of the 34 FIBV members identified to have warrant markets, 20 are in Europe/North America; 11 in the Asia-Pacific region and 3 in other regions. Among the 18 exchanges that provide statistics of their warrant markets, Switzerland was [WWM.doc] Planning & Research, HKEx

3 the world's largest warrant market in terms of turnover value. As of 1999, the warrant turnover of the Swiss Stock Exchange (SWX) totalled US$38,051 million, followed by the Stock Exchange of Hong Kong (now Hong Kong Exchanges (HKEx)) with US$16,689 million and Deutsche Börse 2 with US$16,304 (Figure 1). 3 Although the turnover value of Hong Kong ranked second, it was less than half the Swiss turnover value. Nevertheless, Hong Kong s warrant market turnover was the largest in the Asian Pacific region, 3.5 times as large as that of Thailand, which ranked second in Asia. From Figure 1, the top six exchanges are SWX, HKEx, Deutsche Börse, Italian Stock Exchange, Stock Exchange of Thailand (SET) and Singapore Exchange Securities Trading (SGX). In view of the fact that the top six exchanges account for around 90% of the total warrant turnover of the 18 exchanges, a more detailed analysis of these exchanges is presented. Figure 1. Annual turnover value of warrants in overseas exchanges (1999) 40,000 38,051 35,000 30,000 (US$ million) 25,000 20,000 15,000 10,000 5,000 0 Switzerland# Hong Kong 16,689 16,304 Deutsche Bourse 11,213 Italy* Thailand 4,750 4,432 Singapore Euronext Amsterdam 3,310 3,170 Euronext Paris 1,958 1,680 1,334 1,200 Taiwan Australian London** NYSE Jakarta^ Mexico Vienna^ Warsaw^ Luxembourg@ # Turnover value for Switzerland includes on- and off-exchange turnover of Exchange members in warrants. * Turnover value for Italy is based on 1998 figures. ** Turnover value for London is the aggregate value of listed and unlisted warrants as well as warrants on LSE's Alternative Investment Market (AIM). The figure would include turnover not transacted through the Order Book for which both purchase and sale orders are counted. ^ Turnover value for Jakarta, Vienna and Warsaw are based on 2000 The best available figure of "warrants and others" is used which may include options. Note: (1) The FIBV member exchanges that are identified to have warrant markets but which cannot provide the figures are Amex, Bermuda, Chicago, Colombo, Euronext Brussels, Helsinki, Johannesburg, Kuala Lumpur, Montreal, Nasdaq, Philippine, Sao Paulo, Stockholm, Tel-Aviv, Tokyo and Toronto. (2) An attempt has been made to ensure that the warrant turnover figures of the target exchanges is single-counted so as to be comparable. However, some differences in turnover counting methods cannot be eliminated. Irish 3.2 Turnover performance Between 1995 and 2000, all warrant markets under analysis experienced turnover growth except Singapore for which the warrant turnover shrank at an average annual rate of 11% (Table 1). The top three warrant exchanges, namely SWX, HKEx and Deutsche Börse, enjoyed an average annual growth of over 20% in turnover. 2 Figures for Deutsche Börse (i.e. all German Exchanges) are the aggregate figures from the exchanges of Frankfurt, Dusseldorf, Munich, Hamburg, Stuttgart, Berlin, Hanover and Bremen. 3 However, caution is needed as the figure for the Swiss market includes on- and off-exchange trading while the figures for Hong Kong and Germany include only on-exchange trading. [WWM.doc] Planning & Research, HKEx

4 Table 1 Annual growth rate of warrant turnover on the selected exchanges Year Switzerland Hong Kong Germany Italy Thailand Singapore 1995 NA NA NA NA NA NA % 93% 27% -36% 48% -36% % 121% 133% 225% 4% -39% % -62% 8% 141% -70% -48% % 25% -26% NA 649% 893% % 29% NA NA NA -72% Compound average annual growth rate 26% 21% 24% 72% 36% -11% 3.3 Share of listed warrants in number of securities and market turnover Warrants are regarded as a relatively important security type for SWX, HKEx and Deutsche Börse SWX and HKEx s warrants contribute respectively 52% and 22% of the total number of listed securities in 2000 and the corresponding figure for Deutsche Börse was 26% in 1999 (Table 2). These figures are high compared to the corresponding figures for Italian and Thai exchanges which were below 10%. The rising popularity of warrants in SWX and Deutsche Börse is particularly reflected from the increasing percentage share of warrants in their total number of securities from 17% in 1995 to 52% in 2000 for SWX; and from 17% in 1996 to 26% in 1999 for Deutsche Börse. Table 2 Listed warrants as a percentage of the number of listed securities on the selected exchanges End of Year Switzerland Hong Kong Germany (1) Italy Thailand Singapore % 24% NA 10% 6% NA % 29% 17% 10% 7% NA % 35% 18% 8% 5% NA % 22% 19% 9% 6% NA % 16% 26% NA 7% NA % 22% NA NA NA NA (1) Figures for Germany are warrants quoted by all German Exchanges (Deustche Börse). In respect of trading volume, warrant turnover does not constitute a significant proportion of the total market turnover of the 6 exchanges in this analysis. Except in the case of the SET, warrant turnover on the exchanges does not exceed 10% (Table 3). In particular, warrant turnover on Deutsche Börse accounted for only an insignificant proportion less than 2%. Table 3 Percentage share of annual warrant turnover to total market turnover Year Switzerland Hong Kong Germany Italy Thailand Singapore % 7.8% 0.6% 2.9% 4.3% 4.6% % 8.8% 0.7% 1.8% 8.0% 2.8% % 7.3% 1.7% 2.6% 12.8% 1.3% % 6.1% 1.5% 2.6% 4.0% 0.8% % 6.8% 1.2% NA 16.4% 4.2% % 5.5% NA NA NA 1.3% [WWM.doc] Planning & Research, HKEx

5 3.4 Market share by different types of warrants a) Equity warrants vs derivative warrants All the top three warrant exchanges offer a range of warrant products for trading. Warrants traded on SWX include equity warrants, basket warrants, index warrants, bond warrants as well as some other types. Deutsche Börse offers the largest portfolio of products including equity warrants, covered warrants, bond warrants, index warrants, options and futures warrants, currency warrants, commodity warrants and other types of warrants. For HKEx, listed warrants include equity and derivative warrants which include index, currency and other types of warrants issued by a party independent of the issuer of the underlying securities or its subsidiaries. The Italian and Thai exchanges only introduced derivative warrants in 1998 and 1999 respectively. While the share of derivative warrants as a proportion of the total number of warrants in the Italian market is uncertain, only two out of the 28 listed warrants on SET were derivative warrants in On SGX, there are only equity warrants. As of 1999, there were 1,087 warrants listed on SWX, 192 warrants on HKEx and 11,310 warrants on Deutsche Börse (Table 4). In recent years, derivative warrants appear to have risen in popularity relative to equity warrants. In Switzerland, equity warrants accounted for 47% of the total number of warrants in 1999 and down to 40% in In Hong Kong, equity warrants share of total warrant listings dropped from 52% in 1999 to 31% in For Deutsche Börse, equity warrants contributed less than 1% of total warrant listings in 1999 while covered warrants contributed 65%, the rest being other derivative warrants whose underlying assets are not equities. Table 4 Number of warrants on the selected exchanges End of Year Switzerland Hong Kong Germany (1) Italy Thailand Singapore ,351 (2) NA , NA , NA , , NA , ,310 NA 28 NA , NA NA NA 74 (3) (1) Figures for Germany are warrants quoted by all German exchanges (Deustche Börse). (2) 1995 figures represented Frankfurt Stock Exchange only. (3) It is the latest figures as of February 2001 and the warrants are all domestic warrants. In terms of turnover, derivative warrants were also more popular than equity warrants in both Hong Kong (contributing 95% of total warrant turnover in 2000) and Germany (contributing 88% of total in 1999). Since turnover by warrant type is unavailable on SWX, no reference to this exchange can be made. b) Domestic warrants vs foreign warrants Among the exchanges under study, only SWX and Deutsche Börse offer a breakdown of warrant statistics into domestic and foreign warrants. As of 1999, the turnover of domestic warrants on SWX and Deutsche Börse accounted for 92% and 94% of total warrant turnover respectively, although the share of domestic warrant turnover on SWX dropped to 87% in Statistics classified by domestic/foreign warrants are not [WWM.doc] Planning & Research, HKEx

6 readily available on HKEx. Yet, by observation of the trading statistics of individual warrants, it is found that Hong Kong s warrant market is also dominated by domestic warrants. Taking also into account the relatively low percentage share of warrants in total market turnover of even the few largest warrant exchanges, foreign warrants contribution can be said to be very low. These warrant markets mainly serve their domestic economy and the degree of internationalisation has not yet advanced very far. 4. CONCLUSION From the above analysis, it is found that warrant trading is concentrated on a few exchanges. While both equity and derivative warrants are traded on the top three warrant exchanges ranked by turnover, i.e. Switzerland, Hong Kong and Germany, derivative warrants are more popular on the latter two. Notwithstanding the development of world warrant markets, the leading warrant exchanges continue primarily to serve their domestic economy. Although Hong Kong s warrant turnover is less than that of the Swiss market, it has secured a high ranking in world warrant markets. [WWM.doc] Planning & Research, HKEx

7 Appendix 1. List of warrant exchanges in the study 1. American Stock Exchange* 2. Australian Stock Exchange 3. Bermuda Stock Exchange* 4. Chicago Stock Exchange* 5. Colombo Stock Exchange* 6. Deutsche Börse 7. Euronext Amsterdam Exchanges 8. Euronext Brussels Exchanges* 9. Euronext Paris Bourse 10. Helsinki Exchanges* 11. Hong Kong Exchanges & Clearing Ltd. 12. Irish Stock Exchange 13. Italian Exchange 14. Jarkarta Stock Exchange 15. Johannesburg Stock Exchange* 16. Kuala Lumpur Stock Exchange* 17. London Stock Exchange 18. Montreal Exchange* 19. Mexican Stock Exchange 20. Nasdaq Stock Exchange* 21. New York Stock Exchange 22. Philippine Stock Exchange* 23. Sao Paulo Stock Exchange* 24. OM Stockolm Exchange* 25. Singapore Exchange Securities Trading Ltd. 26. SWX Swiss Exchange 27. Taiwan Stock Exchange 28. Tel-Aviv Stock Exchange* 29. The Stock Exchange of Thailand 30. The Luxembourg Stock Exchange 31. Tokyo Stock Exchange* 32. Toronto Stock Exchange* 33. Vienna Stock Exchange 34. Warsaw Stock Exchange * Warrant statistics not available [WWM.doc] Planning & Research, HKEx

8 Data sources for overseas markets: 1. Selection of target exchanges FIBV Annual Report FIA International Report, December Bridge Handbook of World Stock, Derivative and Commodity Exchanges. 2. Exchange rate FIBV Annual Reports Warrant statistics Published materials (hardcopy or webposting) Australian Stock Exchange Fact Book Deutsche Börse Fact Book Euronext Amsterdam Exchanges Fact Book Euronext Paris Bourse Fact Book Italian Exchange Facts & Figures Jarkarta Stock Exchange Monthly Statistics Jan - Dec London Stock Exchange Secondary Market Fact Sheet Jan - Dec Mexican Stock Exchange Annual Report New York Stock Exchange Fact Book Singapore Exchange Securities Trading Ltd. Fact Book Swiss Exchange Facts & Figures Taiwan Stock Exchange Fact Book The Stock Exchange of Thailand Fact Book The Luxembourg Stock Exchange Facts & Figures Vienna Stock Exchange Statistics 99. Warsaw Stock Exchange Quarterly Market Indicators Information obtained from direct enquiry (via ) Bermuda Stock Exchange Deutsche Börse Irish Stock Exchange Singapore Exchange Securities Trading Ltd. Swiss Exchange [WWM.doc] Planning & Research, HKEx