Cover Up! Hong Kong's Regulation of Exchange-Traded Warrants

Hong Kong Law Journal, Vol. 36, No. 2, 2006

25 Pages Posted: 5 Mar 2009

See all articles by Paul Lejot

Paul Lejot

The University of Hong Kong - Faculty of Law

Date Written: September 1, 2006

Abstract

Regulatory interest in financial derivatives centres on how unforeseen shocks might affect their value. Current concerns arise from prolific growth in the use of derivatives by financial institutions for credit risk transfer, the scale of which some national authorities find disquieting. However, attention in Hong Kong applies to a wholly different setting, springing from its prominent market in listed covered warrants. The regulatory regime for these instruments is fractured, porous, and conflicts with precepts of international practice to which the territory nonetheless subscribes. Primary oversight is entrusted to the Stock Exchange of Hong Kong, a body neither equipped nor inclined to perform the function authoritatively. Slender, variable disclosure requirements do little to inform participants as to the balance of risk and reward inherent in these products, and since most warrant buyers are non-professional individuals, a pronounced market correction would create a significant moral hazard for Hong Kong's government.

Keywords: Hong Kong, Financial regulation, Derivatives, Covered warrants

JEL Classification: G24, G28, K22

Suggested Citation

Lejot, Paul, Cover Up! Hong Kong's Regulation of Exchange-Traded Warrants (September 1, 2006). Hong Kong Law Journal, Vol. 36, No. 2, 2006, Available at SSRN: https://ssrn.com/abstract=1353132

Paul Lejot (Contact Author)

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
196
Abstract Views
1,512
Rank
279,881
PlumX Metrics