Hong Kong Exchanges and Clearing plans to introduce flexible equity index options in the first quarter of 2010, subject to regulatory approval.

The exchange wants to introduce options on the Hang Seng Index and ‘H’ Shares Index, which would allow market participants to trade customised strike prices and expiry months, provided the contracts are bought and sold through the block trade facility.

“The introduction of flexible index options would provide over-the-counter market participants with an attractive counterparty risk alternative,” said the exchange. “OTC players using exchange-traded futures contracts to hedge their OTC option positions would realise collateral and margining efficiencies when they book relevant positions with HKEx.”

The exchange already facilitates block trading of equity index options, but those contracts must have the same strike prices and expiry months as exchange-traded contracts. HKEx said the new contracts were part of an effort to “expand that part of the market by allowing flexibility in strike prices and contract months”.