The requirement to delta adjust options when monitoring against the position limits on the Hong Kong Stock Exchange is not as straightforward as first may appear. For the same contracts, different calculations must be adhered to
Reporting levels
Reporting levels require you to report to the exchange each day you exceed the limit.
For all Reporting levels, all options should not be delta adjusted. This is a simple, straightforward rule.
Example:
Holding just 1000 contracts of the Jun 20 Hang Seng Index Call Option (HSIO) and delta being 0.9. Our position would not be delta adjusted so 1000 contracts would exceed the 500 contract reporting limit.
Position Limits
Position limits should not be exceeded - breach the limit and you could be fined for the regulatory breach.
For position limits, there are specific options that should be delta adjusted, the rest should not be delta adjusted.
The list of options that are required to be delta adjusted are:
- Index Options
- Hang Seng Index (full, mini and weekly)
- Hang Seng China Enterprises Index (full, mini and weekly)
- CES China 120 Index
- Currency Options
- USD/CNH
All other options traded on the exchange, do not need to be delta adjusted when monitored against the position limits.
Example:
Holding 1000 contracts of the Jun 20 Hang Seng Index Option (HSIO) and delta being 0.9. Our position would need to be delta adjusted, so 900 (1000*0.9) contracts would not exceed the All Month position limit of 10000 contracts.
FundApps' Position Limits monitoring service automatically accounts for the different delta adjusting requirements on the Hong Kong Stock Exchange so you can be sure you are correctly monitoring your holdings against the regulatory limits. Get in touch to see how we can make compliance simple for you.
