HKEX to introduce protection function for LPs of USD/CNH Options

Maria Nikolova

The new protection function will be implemented on June 3, 2019.

Hong Kong Futures Exchange Limited (HKEX) today announces its plans for the introduction of the Liquidity Provider (“LP”) Protection Function for LPs of the USD/CNH Options contracts. The new function is set to be implemented on June 3, 2019.

With the LP Protection Function, the Hong Kong Futures Automatic Trading System (HKATS) will cancel LP’s quotes in the USD/CNH Options contracts in case such quotes are taken by the market exceeding a pre-defined volume threshold within a pre-defined period of time. HKATS will also prevent such LP from entering new quotes for a pre-defined period of time after such order cancellation function has been triggered.

The LP Protection Function is available for LPs of the USD/CNH Options contracts who provide continuous quotes. Their obligations are specified in table below.

Since CNH trading was first introduced in Hong Kong in 2004, the market size has grown exponentially on the back of China’s fast transformation into a leading trading country. The growth of the dim sum bond market, expansion of foreign capital participation in the Chinese securities markets, and RMB internationalisation have spurred demand for products, which could help market participants hedge their CNH exposure. Responding to such market requirements, HKEX introduced USD/CNH futures in 2012. Following their success and anticipating growing needs for more flexible hedging tools, HKEX introduced the exchange traded USD/CNH options as part of its strategy to build up a full range of foreign exchange derivatives products.

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