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Hong Kong Exchange Plans Suite of New Exchange-Traded Products

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  1. #1

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    Hong Kong Exchange Plans Suite of New Exchange-Traded Products

    https://www.bloomberg.com/amp/news/a...raded-products

    Sorry if this has been discussed elsewhere, couldn't see another thread on it.

    What will this mean for the liquidity of ETFs on the HKex, in layman's terms? Will this impact the likes of 3140?

    I took a look at the Ishares Nasdaq 100 ETF after reading this article and notice the bid/ask was really tight, last week it was huge. Is that related to this change?

  2. #2

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    Based on the article seems to be more mainlandisation. Seems they will be to track various mainland indexes, rather than being globally diversified.


  3. #3

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    What about this part, pin?

    "The exchange on Monday initiated new rules that tightened so-called price ticks and introduced continuous market making obligations on ETPs. It’s also getting help from the government, which is going to waive stamp duty for ETF market makers creating and redeeming units starting Aug. 1."


  4. #4

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    It’s also getting help from the government, which is going to waive stamp duty for ETF market makers creating and redeeming units starting Aug. 1.
    I've read about this and if I understand this correctly what it means that for HK shares purchased by HK ETFs for the purpose of creating new units there will not be any stamp duty. I would assume that means that there might be some slight reduction in management charges, if this stamp duty waiver is passed to retail.

    Have I understood this correctly?
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  5. #5

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    Quote Originally Posted by shri:
    I've read about this and if I understand this correctly what it means that for HK shares purchased by HK ETFs for the purpose of creating new units there will not be any stamp duty. I would assume that means that there might be some slight reduction in management charges, if this stamp duty waiver is passed to retail.

    Have I understood this correctly?
    Depends on the ETF. For most of the ones I have looked at stamp duty and management fees are entirely separate expenses so the saving on stamp duty is automatically passed through to the fund. Total expense ratio comes down but the management fee is unchanged. I have no idea whether this applies to all funds?

    In theory waiving stamp duty should attract more inflows into a fund because investors buying a basket of HK stocks matching the ones held in the ETF will have to pay the stamp duty whereas those getting the same exposure though the fund will not have to pay stamp duty. Given that stamp duty is quite low in HK, I'm not sure whether many investors will notice the difference.
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  6. #6

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    Quote Originally Posted by traineeinvestor:
    Depends on the ETF. For most of the ones I have looked at stamp duty and management fees are entirely separate expenses so the saving on stamp duty is automatically passed through to the fund. Total expense ratio comes down but the management fee is unchanged. I have no idea whether this applies to all funds?

    In theory waiving stamp duty should attract more inflows into a fund because investors buying a basket of HK stocks matching the ones held in the ETF will have to pay the stamp duty whereas those getting the same exposure though the fund will not have to pay stamp duty. Given that stamp duty is quite low in HK, I'm not sure whether many investors will notice the difference.
    TI, can you explain what "continuous market making obligations on ETPs" might mean for retail investors, if anything?


  7. #7

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    Quote Originally Posted by Kowloon72:
    TI, can you explain what "continuous market making obligations on ETPs" might mean for retail investors, if anything?

    If I have read the linked circular correctly, it means that the market maker(s) have to offer bid/ask quotes with a maximum spread based on which of three "liquidity profiles" each ETF falls within. These look quite reasonable to me (although wider than the more liquid US markets).

    There are some minimum participation rates and minimum notional values which are designed to ensure there is at least enough volume on offer most of the time to enable smaller investors to get in and out.

    Because the participation rate is less than 100%, this means that the market maker could decide not to have a bid in all the time. Example: if Wall Street tanking or some other over night event led the market maker to believe that the market would drop sharply on open, they could stand aside and then resume offering quotes after the initial drop. At least, I assume how it would work?

    https://www.hkex.com.hk/-/media/HKEX..._0042019_e.pdf
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