The Hong Kong Exchanges and Clearing Limited (HKEX) has announced an update to its Lead Market Maker (LMM) program for stock options, set to take effect on July 2, this Thursday.

The revised program will run for a one-year term until June 30, 2027, inclusive. A total of 22 underlying securities have been added to the LMM scheme.

These include major names such as AIA (01299), BIDU-SW (09888), BYD COMPANY (01211), CHINA MOBILE (00941), HSBC HOLDINGS (00005), and TENCENT (00700).

Eligibility Criteria

The exchange has set clear eligibility requirements for applicants. Qualified entities must have been an existing Lead Market Maker and/or a Continuous Quote Provider for the relevant stock option contract over the past 12 months.

Standardized Quoting Obligations

Regarding the duties of Lead Market Makers, the new rules introduce standardized quoting requirements. For option bid-ask spreads, HKEX will categorize each stock option contract into three tiers based on the underlying stock's liquidity and volatility.

Level 1 applies to high-liquidity options with normal spreads, Level 2 to low-liquidity options with wider spreads, and Level 3 to higher-volatility options with wider spreads. Any changes to these categorizations will be communicated to LMMs via email in advance.

Tiered Fee Incentives

To encourage market makers to fulfill their obligations and enhance market liquidity, HKEX has also implemented a tiered transaction fee discount scheme as a supporting measure.