HSI Futures and Options Quote Vendors Access Codes (As at 11 May, 2001)

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2 HSI Futures and Options Quote Vendors Access Codes (As at 11 May, 2001) Information Vendors HSI Futures HSI Options ABC HSImmyy - Bloomberg HIA <Index> HSI <Index> OMON Bridge HK@HSIyym HK@HSIyym ET Net Futures_HSF Quotation Options_HSO Quotation First Electronic Infocast FHSI OHSI Jade Network Quick Corp. FHSI.n/HKF HKFX QuotePower Reuters 0#HSI: 0#HSI*.HF S&P ComStock fhsimy fhmsss StockOnLine HSImy Telekurs 3,HSIyymm,113 3,HSIyymm<C/P> <Strike Price>,113 Telequote HSImmyy - Telerate Teletext Tele-Trend 785, 9785 Alt+O Telephone and HSI Futures HSI Options Paging Companies ABC - Asia Paging 2, 5, 1 2, 5, 3 Hutchison Jade Network Voice Service - Realink Paging Stock Package Forex Package Star Internet - Mini-HSI Futures Quote Vendors Access Codes (As at 11 May, 2001) Information Vendors Mini-HSI Futures ABC MHImmyy Bloomberg HUA <Index> Bridge HK@MHIyym ET Net Futures Quotation Infocast FMHI Jade Network 9785 Quick Corp. FMHI.n/HKF QuotePower Reuters 0#HMH: S&P ComStock fmhimy StockOnLine MHImy Telekurs 3,MHIyymm,113 Telequote MHImy Telerate 2737 Teletext 785 Tele-Trend 785 y: Contract Year C: Call m: Contract Month P: Put

3 Risks of Trading Futures and Options What attracts investors to futures and options markets is the financial leverage created by the ability to control the total value of a contract with a relatively small amount of margin. While trading in futures and options can provide investors with substantial profits, it can equally result in substantial losses. Potential investors must understand the risks of trading in futures and options before beginning to trade. The risk associated with trading futures and options contracts can be substantial and therefore no investor should trade these products until such risks are fully understood. Exchange Participants are required to fully explain the nature and risks of futures and options to their clients. In addition, an investor should read and understand the risk disclosure document given to him as part of the client account documentation process before signing. Futures and options are certainly not for every investor. The investor is advised to assess his ability to undertake the exposures and risks presented by trading futures and options contracts. Hong Kong Exchanges and Clearing Limited (2001) All rights reserved. No part of the contents may be reproduced or transmitted, in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in any retrieval system of any nature without the written permission of the copyright holder, application for which shall be made to the copyright holder. Nothing herein is to be construed as a recommendation to purchase or sell futures and options contracts or to provide investment advice. While every effort is made to ensure the accuracy and completeness of information contained in this booklet, HKEx assumes no liability in respect of statements of any nature contained in this publication. Errors or omissions, if any, should not be made by anybody the basis for any claim, demand, or cause of action.

4 CONTENTS THE BENCHMARK FOR HONG KONG 2 HANG SENG INDEX 3 HANG SENG INDEX SELECTION CRITERIA 3 HANG SENG INDEX FUTURES AND OPTIONS CONTRACTS AND MINI-HANG SENG INDEX FUTURES CONTRACTS 4 ADVANTAGES OF TRADING HANG SENG INDEX FUTURES AND OPTIONS CONTRACTS 4 ADVANTAGES OF TRADING MINI-HANG SENG INDEX FUTURES CONTRACTS 5 COMPARISON AND CONTRAST OF KEY FEATURES OF HANG SENG INDEX AND MINI-HANG SENG INDEX FUTURES CONTRACTS 6 HKEx Derivatives Market 12/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Tel: (852) Fax: (852) [email protected] Website:

5 The Benchmark for Hong Kong The Hang Seng Index, the leading barometer of Hong Kong blue-chip stock prices, is one of the best known indices in Asia and is widely used by fund managers as their performance benchmark. The 33 constituent companies in the Hang Seng Index are all leaders in their respective industries and their stocks are widely held by individual and institutional investors. Since its introduction on 24 November 1969, regular adjustments of Hang Seng Index constituent stocks have been made to reflect the relative importance of different industry sectors and to keep track of the closer economic ties between Hong Kong and Mainland China. Despite rapid changes in the Hong Kong stock market, the Hang Seng Index has proven to be an effective tool to track the overall performance of the Hong Kong equity market. Figure 1 below graphically depicts the correlation between the Hang Seng Index and the All Ordinaries Index of The Stock Exchange of Hong Kong (SEHK), which consists of all listed stocks in Hong Kong. Figure 1: Hang Seng Index vs All Ordinaries Index 2

6 Hang Seng Index The Hang Seng Index, a market capitalisation-weighted index (shares outstanding multiplied by stock price), consists of 33 constituent stocks. The influence of each stock on index's performance is directly proportional to its relative market value. Constituent stocks with higher market capitalisation will have greater impact on the indexds performance than those with lower market capitalisation. The 33 constituent stocks are grouped under Commerce and Industry, Finance, Properties and Utilities sub-indices. These stocks account for above 70% of the total market capitalisation of all stocks listed on the SEHK. The Hang Seng Index is compiled, published and managed by HSI Services Limited, a wholly-owned subsidiary of the Hang Seng Bank. Hang Seng Index Selection Criteria The Hang Seng Index has 33 constituent stocks. To be eligible for selection, a company: should be among those that constitute the top 90% of the total market capitalisation of all ordinary shares listed on the SEHK (market capitalisation is expressed as an average of the past 12 months); should be among those that constitute the top 90% of the total turnover on the SEHK (turnover is aggregated and individually assessed for eight quarterly sub-periods for the past 24 months); should have a listing history of 24 months; and should not be a foreign company as defined by the SEHK. From all eligible companies, final selection is based on the following: the market capitalisation of the companies; the representation of the sub-sectors within the Hang Seng Index directly reflecting that of the market; and the financial performance of the companies. 3

7 HSI Services reviews Hang Seng Index constituent stocks on a quarterly basis. Note: The updated list of Hang Seng Index constituent stocks and their weightings is available from the web site of HSI Services: Hang Seng Index Futures and Options Contracts and Mini-Hang Seng Index Futures Contracts To meet the growing interest in the Hong Kong stock market and rising demand for related hedging tools, Hang Seng Index futures contracts were introduced in May 1986 followed by the introduction of Hang Seng Index options contracts in March These contracts provide investors with a set of effective instruments to manage portfolio risk and to capture index arbitrage opportunities. The popularity of Hang Seng Index futures and options has developed gradually with ever-increasing domestic and international investors' participation. Mini-Hang Seng Index futures contracts, launched in October 2000, serve the trading and hedging needs of retail investors. Mini-Hang Seng Index futures contracts are one-fifth the size of standard Hang Seng Index futures contracts. Advantages of Trading Hang Seng Index Futures and Options Contracts PROVEN MARKETS Hang Seng Index futures and options allow experienced and novice investors alike to participate in the performance of 33 constituent stocks in the index. As both local and international investors regard the Hang Seng Index as a time tested benchmark for the Hong Kong equity market and yardstick of portfolio performance, these contracts are consistently used by different investors for trading and risk management purposes. COST EFFECTIVE Hang Seng Index futures and options facilitate hedging activities in a more cost-effective way as these contracts are traded on a margin basis. The margin to carry an open position is only a fraction of the contract value. 4

8 LOW TRANSACTION COSTS As the total value of high-capitalisation stocks represented in each Hang Seng Index futures and options contract is substantial and only one commission is charged to establish or liquidate a contract, transaction costs are low when compared to purchasing or selling the constituent stocks. CLEARING HOUSE GUARANTEE As with all futures and options contracts traded on the Exchange, Hang Seng Index futures and options are registered, cleared and guaranteed by the Clearing House. The Clearing House acts as the counter-party to all open contracts, which effectively eliminates counter-party risks between its Clearing Participants. The Clearing House guarantee does not cover a Clearing Participant's obligations to its clients. Investors should exercise due care and diligence when deciding through whom they will conduct business. Advantages of Trading Mini-Hang Seng Index Futures Contracts In addition to the benefits of trading Hang Seng Index futures and options contracts mentioned above, the advantages of trading Mini- Hang Seng Index futures contracts are as follows: Smaller Contract Size As a Mini-Hang Seng Index futures contract is only one-fifth the size of a standard contract, retail investors who want to participate in the Hang Seng Index futures market on a smaller scale can use the Mini-Hang Seng Index futures contract to satisfy their investment and trading needs. Hedging Tools Tailor-made for Retail Investors Retail investors with portfolios smaller than the contract value of the standard Hang Seng Index futures contracts are now offered Mini-Hang Seng Index futures contracts as the more appropriate hedging tools for managing their market risk. In addition, hedgers can utilise the Mini-Hang Seng Index futures contracts in conjunction with the standard Hang Seng Index futures contracts to fine-tune their activities. 5

9 Comparison and Contrast of Key Features of Hang Seng Index and Mini-Hang Seng Index Futures Contracts Features Hang Seng Index Mini-Hang Seng Index Futures Contracts Futures Contracts Contract Multiplier HK$50 per Index point HK$10 per Index point Contract Months Spot Month, the next calendar month and the next two calendar quarter months (March, June, September and December) Pre-Market 9:15 a.m. - 9:45 a.m. Opening Period 2:00 p.m. - 2:30 p.m. (Hong Kong time) Trading Hours 9:45 a.m. - 12:30 p.m. (first trading session) (Hong Kong time) 2:30 p.m. - 4:15 p.m. (second trading session)* *Except Last Trading Day - See Contract Specifications for details. Daily Settlement Daily Settlement Price of the Price HSI futures contracts Trading Fees and HK$11.50 HK$3.80 Levies (per contract per side: includes Exchange Fee,SFC Levy and Compensation Fund Levy) Minimum Before 1 April 2002 Before 1 April 2002 Commission HK$100 HK$20 (per contract (Overnight Trade) (Overnight Trade) per side) HK$60 HK$12 (Day Trade) (Day Trade) On or after On or after 1 April April 2002 Negotiable Negotiable 6