A Study On The Change And Development Of HongKong Warrant Market

In late seventy, warrants were issued as bonuses to share-holders by some listed companies so local investors had been very familiar with warrant operation. The first covered warrant was traded in the HongKong Stock Exchange in 1989. The issued volume in warrant market was very thin at the very first begining. Now, HongKong has become the most active warrant market in the world. Somehow, behind the fame of no. one, what warrant market has devoted to the HongKong finance industry. From the point of commercial view, warrant issues are always chasing the market's change, which can fulfil individual investors' speculative need. It also enhances the trading volume in the stock market, which provides a stable business opportunities to the securities industry. At the same time, warrant issuers need to proceed their hedging operation for this derivative product, which provides significant trading volume to the market. Therefore, stock investors are to easy to find their trading partners, which has created a mechanism of price stabilizer. However, has the extreme boom in the warrant market created some obstacle to the development of HongKong financial market? It is a worthwhile exploring topic. First, many of the investors still observe covered warrants with the concept of traditional company warrants. They do not aware the fact that present covered warrants are constructed as surreal financial products under Black-Scholes Option Pricing Model. Indeed, Black-Scholes Option Pricing Model was built on the foundation of profound mathematics. It is difficult for them to understand the concept in this model. In such case, issuers apply these said empirical data to package covered warrants in their discretionary interest. For example, they like to promote popular plays with extreme volatility so they can issue high premium covered warrants under the grounding of high implied volatility. As individual investors usually focus only on short-term good news and neglect high premium in the new covered warrants. As a result, they hold such burning taro and see them devaluing day by day. Second, issuers act as a product designer, product issuer, market maker and investors' educator at the same time. For sure, it is not a healthy structure. Also, they enjoy great freedom in promoting their products. They monopolize the commentaries in various media with their grandiose financial background. This is reviewing the fact of derivatives orientating situation. People in the industry are worrying about it. Does the extreme activity in warrant market also affect capital flow in other financialproducts? The fact that the GEM board and the option market cannot be said as a success. Is there any problem existing? Now, what this dissertation discusses is whether supervision should be reinforced. If this cannot be done, is there any other efficient method to rectify the present situation. Finally, with the conclusion of HongKong warrant market development, it provides a reference for the development of derivatives market in the Great China Region.