Why does the liquidity provider sometimes become less active in providing quote?

In circumstances where the outstanding quantity of a warrant or CBBC in the market increases, the liquidity provider may be less active in providing quotes for such warrant or CBBC. This is because the key role of a liquidity provider is to facilitate liquidity when there is limited or no market liquidity on the warrant or CBBC (such as when the products are newly listed on the Exchange with limited or no trading by market participants or investors) and to support a tradable environment for the warrant or CBBC. If a warrant or CBBC is not eligible for active quotes due to the fact that there is more than 50% of its aggregate number outstanding in the market, then there may not be any active quote from the liquidity provider. You can find out the outstanding quantity of warrant or CBBC as of the previous trading day on the HKEX’s website.

Where the number of market participants for a particular product grows, the “market force” increases, and the product becomes less dependent on the liquidity provider as the sole source of liquidity. By implication, the role of the liquidity provider becomes less important when there is a higher number of particular warrant or CBBC outstanding, because this means there are more investors trading in the product, leading to a natural market.