HKEX Consults Market on Proposed Microstructure Enhancements in the Securities Market

Hong Kong Exchanges and Clearing Limited (HKEX) today (Friday) published a consultation paper on proposed enhancements to the Pre-opening Session (POS) and Volatility Control Mechanism (VCM) in the securities market.

“The two market microstructure proposals aim to boost market liquidity and to enhance global competitiveness of the Hong Kong market,” said Wilfred Yiu, HKEX Head of Markets.  “In particular, the enhancements to the Pre-opening Session will help improve price discovery and increase trading liquidity before the market opens.  Meanwhile, the Volatility Control Mechanism enhancements will help reduce risks caused by extreme price volatility in individual stocks, and reflect changes in international practice and regulatory guidance.”

Overview of POS Enhancements

The proposal to enhance the POS auction mechanism involves adopting relevant features in the Closing Auction Session, which was introduced in 2016.  The proposed enhancements include:

  • Adjusting securities coverage to include all equities and funds;
  • Introducing randomised auction matching;
  • Allowing at-auction limit orders throughout POS;
  • Allowing short selling orders with a price not lower than the previous closing price; and
  • Setting a two-stage price limit — apply a fixed ±15 per cent price limitwith reference to the previous closing price during order input period, followed by a second stage price during no cancellation and random matching periods in which order prices will be limited to within the lowest ask and highest bid prices recorded at the end of order input period.

Overview of VCM Enhancements

Since the introduction of the stock-level VCM mechanism in the securities market in 2016, further guidance was issued by International Organisation of Securities Commissions (IOSCO) in August 2018 asking regulated markets to review and adjust their volatility controls from time to time, to ensure that they stay relevant with respect to the latest market developments.  Accordingly, working in conjunction with the Securities and Futures Commission (SFC), HKEX seeks to consult the market on the following VCM enhancements in the securities market:

  • Expanding VCM stock coverage from constituent stocks of the Hang Seng Index and Hang Seng China Enterprises Index (80+ stocks) to constituent stocks of Hang Seng Composite LargeCap, MidCap and SmallCap Indexes (total of nearly 500 stocks);
  • Applying a tiered structure of triggering thresholds at ±10 per cent, ±15 per cent, and ±20 per cent to the last traded price five minutes ago respectively for the constituent stocks of the three Hang Seng Composite Indexes; and
  • Allowing multiple triggers per trading session for each VCM stock.

The consultation paper and questionnaire are available from the HKEX website.  Interested parties are encouraged to respond to the consultation paper by 27 September 2019.

Under certain scenarios such as IPO stocks, the ±15% price limits will not be applicable.


About HKEX

Hong Kong Exchanges and Clearing Limited (HKEX) is one of the world’s major exchange groups, and operates a range of equity, commodity, fixed income and currency markets.  HKEX is the world’s leading IPO market and as Hong Kong’s only securities and derivatives exchange and sole operator of its clearing houses, it is uniquely placed to offer regional and international investors access to Asia’s most vibrant markets.

HKEX is also the global leader in metals trading, through its wholly owned subsidiaries, The London Metal Exchange (LME) and LME Clear Limited.  This commodity franchise was further enhanced with the launch of Qianhai Mercantile Exchange, in China, in 2018.

HKEX launched the pioneering Shanghai-Hong Kong Stock Connect programme in 2014, further expanded with the launch of Shenzhen Connect in 2016, and the launch of Bond Connect in 2017.




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