20 held in suspected Hong Kong stock warrant scam

HONG KONG, May 29 (Reuters) - More than 20 staff from securities houses in Hong Kong have been arrested by the city's anti-corruption watchdog on suspicion of fraudulent stock warrant transactions, local newspapers reported on Thursday.

The South China Morning Post quoted unnamed sources as saying staff of warrants distributors had been arrested by Hong Kong's Independent Commission Against Corruption (ICAC), adding they were accused of "making special deals with brokers on product subscriptions in order to boost sales".

It gave no further details.

The Hong Kong bourse said the derivatives warrant market would be open as normal, despite the arrests.

"All issuers have confirmed that they are operationally ready and their liquidity providers will continue to provide market-making services," Hong Kong Exchanges and Clearing (0388.HK) said in the statement on Thursday.

The trading volume of the warrants market accounts for some 20 to 30 percent of the Hong Kong stock exchange's daily turnover and some industry sources feared the arrests could further shrink the stock market's already low turnover, the Hong Kong Economic Journal reported.

An ICAC spokeswoman confirmed an anti-corruption operation was ongoing related to local securities firms, but declined to give details.

Warrants are options issued by financial institutions that allow the holder to buy or sell a security at a predetermined price.

Retail investors are attracted to warrants with high turnover as they offer investors exposure to a single stock or share index at a fraction of the cost and the chance to earn higher returns should the market move in their favour.

The value of warrants traded in Hong Kong has more than doubled from HK$1.73 trillion in 2006 to HK$4.55 trillion last year, according to Societe Generale. (US$1=HK$7.8) (Reporting by Donny Kwok and James Pomfret; Editing by Anne Marie Roantree)