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H-shares Index Options

Launch Date : 14 June 2004

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Why Introduce H-shares Index Options?

H-shares Index Futures have been actively traded since 8 Dec 2003. The introduction of H-shares Index Options will complement the trading of H-shares Index Futures.

Since the launch of H-shares Index Futures market participants have requested HKEx to launch H-shares Index Options. This product can assist market participants to better manage their exposure in H-share portfolios.

To meet the growing trading interest in the H-shares market and to deepen the liquidity of the underlying cash market and derivatives market.

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HKEx - Market for H-shares

During the period Jul 1993 to Apr 2004, H-share companies raised more than $201 billion in Hong Kong.

As of Apr 2004, there were 98 companies whose H-shares were listed on the Stock Exchange (66 on the Main Board and 32 on GEM).

At the end of Apr 2004, there was a total of 55 H-shares Index warrants from six issuers listed on the Stock Exchange.

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Investors’ Interest in H-shares

Avg Daily Turnover2002 $581 Mil2003 $2,041 Mil2004* $5,006 Mil

+145% increase from 2003

* Jan – Apr 2004

Market Capitalisation (year end)2002 $132 Bil2003 $408 Bil2004* $333 Bil

* 30 Apr 2004

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Jan-02 Mar-02 May-02 Jul-02 Sep-02 Nov-02 Jan-03 Mar-03 May-03 Jul-03 Sep-03 Nov-03 Jan-04 Mar-04

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Turnover (left axis)

Market Capitalisation (right axis)

H-shares Market Capitalisation and Turnover$ Billion $ Billion

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H-shares Index Futures Actively Traded

Underlying Index : HSCEI (Hang Seng China Enterprises Index)

H-shares Index Futures introduced on 8 Dec 2003. The total volume from Jan - Apr 2004 reached 491,3

13 contracts and average daily volume was 6,103 contracts.

The volume and open interest set new records of 23,670 contracts and 27,092 contracts on 27 Apr 2004 and 28 Apr 2004 respectively.

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The Volume and Open Interest of H-shares Index Futures(8 Dec 2003 – 30 Apr 2004)

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30,000

Dec-03 Jan-04 Feb-04 Mar-04 Apr-04

Volume Open Interest

Contracts

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HSCEI Statistics and Characteristics Index Level

- 3,897.08 (as of 10 May 2004)

Market capitalisation of HSCEI- $296 billion (as of 10 May 2004)

Average daily turnover (Jan - Apr 2004)

- $3.9 billion, accounting for 24% of total equity turnover (Main Board and GEM)

High Volatility (Q2 2003 – Q1 2004)

Good Return (Q2 2003 – Q1 2004)

HSCEI HSI S&P500

31% 17% 14%

HSCEI HSI S&P500

118% 48% 31%

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Performance of HSCEI

8,000

10,000

12,000

14,000

16,000

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20,000

Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04

Index Points

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Index Points

HSI (left axis)

HSCEI (right axis)

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20-Day Annualised Volatility for HSCEI

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HSI HSCEI

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Recent Changes to HSCEI On 8 Mar 2004, six constituent stocks were added while one constituent stoc

k was removed from the HSCEI. The number of constituents was increased from 32 to 37 stocks. The HSCEI’s market capitalisation rose from $319 billion to $387 billion. The new constituents expanded the representation and industry coverage of t

he HSCEI. Stocks added:

China Life Insurance Co. Ltd., PICC Property and Casualty Co. Ltd., Great Wall Automobile Holding Co. Ltd., AviChina Industry & Technology Co. Ltd., Weiqiao Textile Co. Ltd., Fujian Zijin Mining Industry Co., Ltd.

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H-shares Index Options Contract Specifications

Trading Symbol: HHI Contract multiplier = $50 Minimum Fluctuation: 1 index point Strike Interval: 100 index points Contract months are the same as HSI Options -

Spot Month, the next two calendar months, and the next three calendar quarterly months

Exchange Fee : $3.50 Commission : Negotiable

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Introduction of Four Additional Stock Options and Futures

Additional Stock Options and Futures on the following H-shares will also be introduced on 14 June 2004: China Petroleum & Chemical Corporation (“Sinopec”) China Life Insurance Co. Ltd. (“China Life”) China Telecom Corporation Ltd. (“China Telecom”) Aluminum Corporation of China Ltd. (“Chalco”)

To complement the trading in H-shares Index Options To offer trading and hedging instrument for H-shares The total number of stock options and futures will be increased to

37 and 36 respectively. There will be options and futures on six HSCEI constituents.

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Statistics of Sinopec, China Life, China Telecom and Chalco

Stock Name Weighting In HSCEI

(%)

(30 Apr 2004)

Market Capitalisation

(HK$ Bil.)

(30 Apr 2004)

Avg. Daily Turnover

(HK$ Mil.)

Jan – Apr 2004

20-day Annualised Volatility (

%)

Jan – Apr 2004

Sinopec

(386)

14.7% 45.4 536 53.2%

China Life (2628)

10.3% 31.8 685 40.6%

China Telecom (728)

6.1% 18.8 270 47.5%

Chalco

(2600)

4.9% 15.1 291 61.8%

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Questions and Answers

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