Hang Seng Index Futures & Options

Hang Seng Index (HSI), the benchmark of the Hong Kong stock market, is one of the best known indices in Asia and widely used by fund managers as their performance benchmark.

The Hang Seng Index is a market capitalisation-weighted index (shares outstanding multiplied by stock price) of the consituent stocks. The influence of each stock on the index's performance is directly proportional to its relative market value. Constituent stocks with higher market capitalisation will have greater impact on the index's performance than those with lower market capitalisation. The constituent stocks are grouped under Commerce and Industry, Finance, Properties and Utilities sub-indices.

To meet the growing interests in the Hong Kong stock market and rising demand for related hedging tools, the Hong Kong Futures Exchange (HKFE) first introduced Hang Seng Index futures contracts in May 1986 followed by the introduction of Hang Seng Index options contracts in March 1993. 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 increasing domestic and international investors' participation.

Mini-Hang Seng Index Futures & Options

To meet the needs of retail investors with an interest in the Hong Kong stock market, the Hong Kong Futures Exchange (HKFE) has introduced a Mini-Hang Seng Index (Mini-HSI) futures contract since 9 October 2000. To complement Mini-HSI futures, Mini-HSI option contracts were launched in November 2002.

The compact, Mini-HSI futures & option contracts are based on Hong Kong's benchmark Hang Seng Index (HSI), which is also the underlying index for the larger sized HSI futures & option contracts. The contract multiplier of the Mini-HSI futures & option contracts are HK$10.00 or one-fifth the size of the HSI futures & option contracts. Same as the HSI futures & option contracts, the settlement method for the mini contracts are cash settled.

Local retail investors who have less risk capital and lower hedging requirements will find the Mini-HSI futures and option contracts the most appropriate investment tools as well as hedging instruments for managing their market risk.

Dow Jones Industrial Average Futures

The Dow Jones Industrial Average or DJIA is a price-weighted, 30-stock measure of the US market. The constituent stocks are substantial companies, widely held by investors and renowned for the quality and wide acceptance of their products and services, with strong histories of sustained growth.

The DJIA is used extensively outside its home country, not only as a gauge of the US market but also as a bellwether for the rest of the world's markets. Movements in the DJIA regularly affect international markets. The DJIA is widely published and broadcast throughout Asia. The index is extremely relevant to the day-to-day movements of Asian stock market indices and its performance often triggers responses in Asian markets. As such, it is closely followed by investors in Hong Kong and the Asia Pacific region.

The DJIA Futures contracts use a multiplier of HK$10 per index point. This means when the DJIA is at 10,000 index points, the value of one futures contract is HK$100,000. The contracts is traded from 9:00 am to 12:30 pm and 2:30 pm to 4:15 pm Hong Kong time (DST)*, and cash settled in Hong Kong dollars.

H-shares Index Futures & Options

Introduction
There has been growing investors' interest in China-related securities resulting from the rapid expansion of Mainland economy. The Hang Seng China Enterprises Index (HSCEI) is a market capitalisation-weighted stock index which is compiled and calculated by Hang Seng Indexes Company Limited. The HSCEI tracks the performance of major H-shares. H-shares are Renminbi-denominated shares issued by People'S Republic of China (PRC) issuers under PRC law and listed on the Stock Exchange of Hong Kong, the par values of which are denominated in Renminbi, and which are subscribed for and traded in Hong Kong dollars.

The latest list of constituent stocks is available on the website of Hang Seng Indexes Company Limited at http://www.hsi.com.hk/HSI-Net/HSI-Net

Stock Futures

A stock futures contract is a commitment to buy or sell the financial exposure equivalent to a specific amount (contract multiplier) of shares of the underlying stock at a predetermined price (contracted price) on a specified future date.

As stock futures contracts are cash settled, there is no physical delivery of shares when the contract expires.

Upon expiry, profits and losses are credited or debited to the account of the contract buyers/sellers in an amount equal to the difference between the contracted price and the final settlement price multiplied by the contract multiplier.

The final settlement price is the average of the midpoints of the best bid and offer prices for the underlying stock as quoted on The Stock Exchange of Hong Kong, taken at five-minute intervals during the last trading day.

To offset an open short stock futures position before expiry, a seller of a stock futures contract simply buys back the contract while a buyer sells a stock futures contract to close the open long position.

All buyers and sellers of stock futures are required to post margin when opening a position in the market to ensure performance of the contractual obligations. If the margin falls below the stipulated level due to adverse price movements, the investor will be called upon to promptly restore the margin back to the original level.

Gold Futures

The contract design for gold futures is based on the Loco-London gold standard which is popular among Hong Kong and international investors.

The benchmark of the proposed contract is gold of not less than 995 fineness. The contract size is 100 troy ounces and quoted in US dollars per troy ounce. The gold futures contract is traded in US dollars and cash-settled in US dollars. Final settlement price is based on the AM, or morning, price fixing carried out by The London Gold Market Fixing Ltd and published by the London Bullion Market Association (LBMA) on the contract’s last trading day. LBMA price fixings have been in the market since 1919 and are widely recognised benchmarks in the global gold market.