Equity Markets and Equity-Related Products
This domain covers the cash equity product set on SEHK and the corporate actions that change what a share is worth. Questions tend to be mechanical: share types, board lots and spreads, short-selling eligibility, and the pricing arithmetic of rights and bonus issues.
What is listed
Ordinary shares carry votes and a residual claim. H shares are issued by mainland-incorporated companies; red chips are incorporated outside the PRC but controlled by mainland entities and listed in Hong Kong. Equity-related products include preference shares, Hong Kong depositary receipts, REITs (REIT Code), ETFs, issuer-issued company warrants, and derivative warrants and CBBCs issued by third-party institutions.
Trading mechanics
- Board lots differ by counter; the spread table widens as price rises.
- Short selling is allowed only in designated securities and only at a price not below the best current bid - the tick rule.
- Stamp duty applies to share transfers but not to derivative warrants, CBBCs or futures.
- Stock Connect provides Northbound access to eligible A-shares and Southbound access to eligible HK stocks, subject to daily quotas and eligibility lists.
Corporate actions
Rights issues, open offers, bonus issues, splits and scrip dividends all adjust the theoretical price. The core formula is the theoretical ex-rights price:
TERP = (market value of existing shares + cash raised) ÷ shares after the issue.
Worked example. A company has five shares in issue trading at HK$6.00 and makes a 2-for-5 rights issue at HK$4.00. Value before = 5 × 6.00 = HK$30.00. Cash raised = 2 × 4.00 = HK$8.00. Shares after = 7. TERP = (30 + 8) ÷ 7 = HK$5.4286. The value of the right itself is TERP minus the subscription price: 5.4286 − 4.00 = HK$1.4286. A holder who neither subscribes nor sells the rights gives that value away - the classic retail loss.
Traps
- Reversing the tick rule: a short sale may be at the best bid or above, never below.
- Using the subscription price as the ex-rights price.
- Forgetting bonus issues are free shares; the adjustment multiplies the old price by (old shares ÷ new shares).
- Assuming a CBBC's call price equals its strike - for a bull contract the call price sits above the strike.