The Securities & Futures Commission has released a report highlighting a six-point plan for improving Hong Kong's derivative warrants market.

It addresses concerns about market conduct and the quality of information provided to investors, and contains proposals to make the market more efficient, fair and competitive.

Commission Chairman Martin Wheatley said the report provides a comprehensive review of the derivative warrants market and highlights a number of areas where reform is needed.

"Our objective is to facilitate the development of a healthy warrants market for investors to make informed investment decisions," he said.

As the market is useful for investment and hedging, it should be allowed to prosper so investors can have more product choices.

6-point plan

The report noted a number of practices that give rise to concern. It proposes:

* tightening the requirements on liquidity providers and making their operations more transparent;

* changing some Listing Rules to make it easier for issuers to issue additional units in popular warrants, and also to allow other issuers to issue "identical" warrants creating more competition;

* banning commission rebates and other incentive schemes;

* the commission will publish new guidelines covering marketing of derivative warrants and it will work with the Broadcasting Authority in relation to commentators who are not regulated by the commission;

*requiring issuers to use "plain language" in their documents and to publish a two-page summary of the key product features, risks and benefits of each warrant; and,

* the commission will launch new investor education initiatives, including new investor competitions, changes to its website and a public interest television commercial.

The report also noted the commission has started investigations into certain derivative warrants activities, including possible false trading, fixing of the settlement price during the expiry process, non-compliance with the liquidity providing obligations and illegal short selling of warrants.