Update on HKEx Equity Derivatives Market

Derivatives Trading

Global Markets Division

24 April 2015

Source: HKFE: Hong Kong Futures Exchange, a wholly-owned subsidiary of HKEx

Asia

Hong Kong : 91

Mainland China : 34

Taiwan : 8

Japan : 4

Australia : 3

Malaysia : 3

Singapore : 3

Indonesia : 1

Europe

UK : 9

France : 5

Netherlands : 3

Switzerland : 3

Germany : 1

America

USA : 10

Canada : 1

2

Distribution of the Origins of HKFE Exchange Participants

Exchange Participants and Market Makers (2014/02)

HKFE Exchange Participants 179

Index Futures / Options Market Makers 29

Stock Options Exchange Participants 87

Stock Options Market Makers 33

Exchange Participants’ Global Distribution

Globalized Participation

HKEx’s Equities Derivatives Products

3

Major Equities Derivatives Products

Futures

Hang Seng Index Futures (HSI Futures)

Mini-Hang Seng Index Futures (Mini HSI Futures)

HSI Dividend Point Index Futures

HSI Volatility Index Futures (VHSI Futures)

H-Shares Index Futures (HHI Futures)

Mini H-Shares Index Futures (Mini HHI Futures)

HSCEI Dividend Point Index Futures

Stock Futures

CES 120 Index Futures

Options

Hang Seng Index Options (HSI Options)

Mini-Hang Seng Index Options (MHI Options)

Hang Seng Index Flexible Options

H-Shares Index Options (HHI Options)

H-shares Index Flexible Options

Stock Options

Coverage of China Equities Derivatives

Page 4

A-shares

(71%)

H-shares

(11%)

Red Chips

(10%)

P-chips

(8%)

• Listed A-shares ETF options and ETF futures for trading in 2010

• Accounted for 6% of the stock options market and 18% of the stock futures

market in 2014

• Introduced CES China 120 Index futures for trading in 2013

• Started trading H-shares Index futures and options in 2003 and 2004

• Accounted for 15.4% and 6.3% respectively in 2014

• China equities universe: RMB 41,804 bil (i.e. USD 6,740 bil) by the end of 2014

• The 5-year CAGR was 6.3 per year

• Constituent stocks in Hang Seng Index

• Single stock Options and futures based on Red Chips starting from 1990s

• Constituent stocks in Hang Seng Index

• Single stock Options and futures based on P-Chips starting from 2000s,

such as Tencent

4

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2000 2002 2004 2006 2008 2010 2012 2014

HSI Futures Stock Options HHI Futures HSI Options HHI Options Mini HSI Futures Mini HHI Futures Others

Overview of HKEx Equity Derivatives

5

HKEx’s derivatives market hit record high volume in 2014

(Contracts)

* Other products are MHI Options, CES 120 futures, dividend futures, VHSI futures, flexible index options, Hibor futures and stock futures

Average Daily Volume of Equity Derivatives

• Total Trading Volume: 142,439,039 contracts

• Open Interest: 7,960,406 contracts

All Time Record High in 2014:

HSI Futures 12.0%

Stock Options 52.3%

HHI Futures 15.4%

HSI Futures

Stock Options

HHI Futures

HSI Options

HHI Options

Mini HSI Futures

Mini HHI Futures

Others

Overview of HKEx Equity Derivatives

6

Options products accounted for 63.9% of HKEx’s derivatives trading volume

* Other products are MHI Options, CES 120 futures, dividend futures, VHSI futures, flexible index options, Hibor futures and stock futures

Average Daily Volume Distribution in 2014 (Jan – Dec)

: 12.0%

: 52.3%

: 15.4%

: 5.3%

: 6.3%

: 4.9%

: 2.4%

: 1.4%

Trading Volume & Open Interest

7

HSI Options

HHI Options HHI Futures

* as of 31 Dec 2014

HSI Futures

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Open Interest Trading Volume

0

50,000

100,000

150,000

200,000

250,000

300,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Open Interest Trading Volume

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

Open Interest Trading Volume

0

50,000

100,000

150,000

200,000

250,000

300,000

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

Open Interest Trading Volume

(No. of Contracts) (Open Interest) (No. of Contracts) (Open Interest)

(No. of Contracts) (Open Interest) (No. of Contracts) (Open Interest)

H-shares index futures and options become the growth leaders

Page 8

Index Futures Exchange ADV

( 2014) Open Interest

year end of 2014 % of O.I to ADV

Nikkei 225 OSE

106,220 439,623 414%

Eurostoxx50 EUREX

1,120,848 3,456,983 308%

H-shares Index HKEx

89,005 259,173 291%

FTSE China A50 SGX

165,691 445,034 269%

Nikkei 225 SGX

111,390 291,718 262%

E-mini S&P 500 CME

1,686,588 2,765,603 164%

Hang Seng Index HKEx

69,098 99,195 144%

DAX EUREX

117,464 129,105 110%

Ratio of Open Interest to Average Daily

Volume of Overseas Equity Index Futures

higher open interest to daily volume ratio in H-shares Index futures:

more hedging activities

8

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Open Interest Trading Volume

Stock Options Trading Volume

9

Stock Option Trading Volume & Open Interest (2004 to 2014)

Stock Option Trading Volume Increased 12 times in 11 years

(No. of Contracts) (Open Interest) CAGR: 27%

* as of 31 Dec 2014

Record high daily volume: 1,221,324 contracts

(13 April 2015)

8 11 13 14

22 25 26

29 33

36 42

45

51

57 60

63

70

80

0

10

20

30

40

50

60

70

80

90

19

95

19

96

19

98

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

No

. o

f S

toc

k O

pti

on

Cla

ss

es

Stock Options Market Growth

Page 10

No. of Stock Options Class 1995 - 2014

80 stock options classes covering H-Shares, Red Chips, Blue Chips and ETF

Trade Overview & Distribution*

Traded (Avg Daily)

% Chg

MoM % Chg

YoY Notional (HKD) 10,528 mm +35.4% +44.9%

Premium (HKD) 240 mm +7.2% -5.6% Contracts 430,415 +43.1% +67.4%

Current No. of Stock Options Classes: 80

H-shares 28.6%

Blue Chips 35.3%

Red Chips 11.2%

ETF 24.2%

Others 0.7%

* Figures as of Mar in 2015 10

After Hours Futures Trading (AHFT)

Why

Average Daily Volume in AHFT Session was 16,350 contracts in 2015 (as of Mar)

(or 7.5% of Day Session)

9:15

Day Session Open

16:15

Day Session Close

17:00

AHFT Session

Open

1 1 1 1 1 Day Session AHFT Session

Meet current trading and hedging needs from global investors

Business growth driver for Hong Kong futures industry

11

* Figures as of Mar in 2015

01:00

Commodities Futures

- AHFT Session Close

23:45

Equity Index &

Currency Futures

- AHFT Session Close

0

5,000

10,000

15,000

20,000

25,000

Ap

r

Ma

y

Jun

Jul

Au

g

Se

p

Oct

Nov

Dec

Jan

Fe

b

Ma

r

Ap

r

Ma

y

Jun

Jul

Au

g

Se

p

Oct

Nov

Dec

Jan

Fe

b

Ma

r

2013 2014 2015

Average Daily Volume of AHFT (Contracts)

Commodities futures

RMB Currency futures

Mini H-shares index futures

Mini HSI futures

H-shares index futures

HSI futures

Record High AHFT

Volume (Contracts) 79,586

(17 Apr 2015)

% of Day Session 31.54%

11

0

10

20

30

40

50

Jan2014

Apr Jul Oct Jan2015

Apr

S&P 500 Index Hang Seng Index H-Shares Index Nikkei 225 Index Kospi 200 Indez

TWSE Index Euro Stoxx 50 Inde CSI 300 Index FTSE A50 Index

Trading Opportunities

- Market Volatility

12

The Higher the volatility, the higher the trading opportunities in futures and options

HSI and HHI are more volatile for futures and options trading compared with other indices

HHI: 31.5

FTSE A50: 25.1

CSI 300: 20.1

HSI: 20.0

Stoxx 50: 14.4

* Source: Bloomberg (data up to 15 Apr, 15)

10D Volatility Comparison in 2014 – 2015 Apr

HHI

HSI

CSI 300

FTSE A50

N225: 13.5

TWSE: 11.3

S&P 500: 10.0

KOSPI: 8.8

Trading Opportunities for Day Traders

(Day High – Day Low) / Avg. Spread

in Apr 2014*

(Day High – Day Low) / Closing Price

in Apr 2014

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1 Apr 8 Apr 15 Apr 22 Apr 29 Apr

HSI Futures HHI Futures

Tick Size / Tick Value 1 pt. / HK$50 1 pt. / HK$50

Round Trip Trading Fee / Tick Value 40% 14%

Avg. (Day High-Day Low) / Avg. Spread 141 108

Avg. (Day High-Day Low) / Day Close 1.4% 1.9%

Great day trading opportunities in HSI futures and HHI futures

0

50

100

150

200

250

1 Apr 8 Apr 15 Apr 24 Apr

13

HSI front month futures HHI front month futures

10

15

20

25

30

35

40

45

50

55

Jan2014

Apr Jul Oct Jan2015

Apr

388 941 700 2823 2318 HSI HSCEI

Trading Opportunities

- Market Volatility

14

Implied Volatility of stock options with top 5 trading volume picks up recently

30D ATM Call Implied Volatility Comparison in 2014 – 2015 Apr

* Source: Bloomberg (data up to 15 Apr, 15)

HKEx (388.HK): 50.1

China Mobile (941.HK): 31.4

Tencent (700.HK): 38.0

FTSE A50 ETF (2823.HK): 34.9

Ping An (2318.HK): 39.7

HHI: 30.8

HSI: 20.8

Risks of Trading Futures and Options

Futures and options involve a high degree of risk. Losses from futures and options trading can exceed your initial margin funds and

you may be required to pay additional margin funds on short notice. Failure to do so may result in your position being liquidated and

you being liable for any resulting deficit. You must therefore understand the risks of trading in futures and options and should assess

whether they are right for you. You are encouraged to consult a broker or financial adviser on your suitability for futures and options

trading in light of your financial position and investment objectives before trading.

©Hong Kong Exchanges and Clearing Limited (HKEx)

All rights reserved. Nothing herein is to be construed as a recommendation to purchase or sell futures and / or options contracts or to

provide investment advice. While efforts are made to ensure the accuracy of information contained in this publication, HKEx and its

subsidiaries do not warrant its accuracy, timeliness, completeness or fitness for a particular purpose and do not assume any liability

for any errors or omissions or any action taken on the basis of such information.

Page 15

Thank You!

15