ANALYSIS: How can Hong Kong’s single stock options market further develop?

To further develop the single stock options (SSOs) market in Hong Kong, a broadened SSO universe, deeper market-making support as well as more efficient clearing and margining are essential.

Ken Hon, head of equities, markets and securities services, Asia at HSBC, observes that the SSO market in Hong Kong is partitioned.

“On one side, you have structured retail products such as warrants and callable bull/bear contracts, which remain very popular in Hong Kong,” he said. “On the other, you have a more event-driven institutional options market.”

On the institutional side, Hon said there has been a clear increase in demand for short-dated and event-driven hedging, particularly around earnings and macro policy headlines out of the region.

“A meaningful portion of recent flow has been driven by those event-related trading patterns,” he said. “In terms of positioning, we saw very strong demand on key semiconductor and higher-beta technology names.”

Clement Cordier, head of derivatives clearing services, markets and securities services, Asia at HSBC, said that the biggest opportunities lie in broadening the underlying SSO universe with more newly listed names and sub-sectors to diversify the offering, growing short-dated liquidity.

“This would attract a wider institutional and retail investor base, open up more liquidity and drive an overall trading cost reduction,” he said.

Continued work on expanding the liquidity concentration beyond the most active names and maturities would also be helpful.

“Over time, a bigger and more efficient ecosystem would encourage more consistent two-way flow and support further institutional adoption,” he said.

To further extend the growth of the segment, Cordier believes that deeper market-making support would be welcomed as it would lead to tighter bid-offer spreads and more consistent screen liquidity across maturities.

“Greater efficiency in clearing and margining are also essential for further growth in the SSO market,” he added.

For instance, cross margining, better collateral flexibility and lower costs would benefit the SSO segment.

In terms of connectivity to China, Hong Kong’s role as the main international gateway to China is a major structural advantage for this market.

“Stronger connectivity helps bring more international investment and risk management demand into Hong Kong-listed names, and over time there is clear scope to deepen this further through broader investor access, greater product alignment and the continued development of cross-border risk management channels,” said Hon.

For HSBC, the opportunity set continues to expand as investors' participation in single-stock trading grows, supporting a broader product universe and a more diversified client offering.

“While retail investors have been particularly active in US underlyings, where thematic interest has been especially strong, it’s also helping to build momentum for further market development more broadly,” said Hon. “Against that backdrop, we are expanding the range of stocks in which we make markets, in line with the growth and client activity we are seeing across our structured products franchise.”

Hong Kong Exchanges and Clearing introduced weekly expiries for 17 SSO classes in two batches, on June 15 and 22, respectively.

In June, HSBC joined LCH’s RepoClear as an agent member to expand buy-side access to centrally cleared euro repo markets and strengthen market infrastructure.