While the stock market is quiet, I would like to put some time before lunch to ask the investors in our stock market how many have lost their money in the investment of equity warrants for the last couple of years. I can almost guarantee the number of losers must far exceed those who can win from it. I am pretty sure the big winners are the issuers of these warrants. It can be easily implicated from their advertisements that can be seen everywhere either from TV, Posters or Radio Broadcasting. They are so penetrating that you can feel it anywhere you go. Why, the issuers play the trading and listing rules to their maximum advantages.
We all know the beauty of equity warrants is that small capital outlay can bet for big returns while the downside is limited to the initial capital. Though sound appealing, wonder how many investors really knew or understood the rules governing the issuance of the equity warrants in Hong Kong.
According the consultation paper issued by SFC in 2006, for the derivative equity warrants, no quota system be for both further issues and identical issues. Also,the processing time by SFC was to reduce from the previously 4 days down to 2 days. The objective of this proposal was said to minimise price anomalies caused by shortages in supply of a particular derivative warrant.
In the other words, the supply of same identical warrant or similar warrant could be increased in size any time without limits and down to the market in just two days time. You can imagine how the prices are affected apart from the movement of the underlying. What on earth the game is so one sided that the risk return is out of balance for small investors.
Hong Kong stock market thrives on the derivatives for number of years and now pleased to say to top the world in its volume. Personally, for Hong Kong to be a successful Financial Center, we are not just aiming for the volume. While we let the crocodiles to move around, also fair rules of games have to be set up to protect the investors.I know most big issuers are coming from big houses and have the resources to have bigger say to affect the rules set by the SFC, but wonder if the views of the general investors should also be weighted.
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