Trading Mechanism 
19/08/2016 
 

TRADING MECHANISM OF THE EXCHANGE

The trading system of the Exchange is an order-driven system.

During the Pre-opening Session, the system accepts at-auction and at-auction limit orders only.

During the Continuous Trading Session, the system accepts limit, enhanced limit and special limit orders only, with an option for an "All-or-Nothing Qualifier" that confines the order to be either executed immediately in full or rejected, without being written into the central order book.

Trading is conducted through Orion Central Gateway session which connects between AMS/3 trading system and Broker Supplied System (“BSS”) or New Securities Trading Device (“NSTD”).

Automatic Order Matching and Execution System ("AMS")

Trading Sessions

Pre-opening Session

The maximum order size for automatch stocks is 3,000 board lots.  The maximum number of outstanding orders per broker ID has been removed while the number of orders in each price queue has been increased to 20,000 effective 29 January 2007.  Orders are accumulated over a certain period of time and matched at a pre-defined order matching period. Orders are matched in order type, price and time priority (at-auction orders carry a higher matching priority), at the final Indicative Equilibrium Price ("IEP").  The Pre-opening Session was introduced in March 2002.  Please click here for FAQ in relation to Pre-opening Session.

Continuous Trading Session

The maximum order size for automatch stocks is 3,000 board lots.  The maximum number of outstanding orders per broker ID has been removed while the number of orders in each price queue has been increased to 20,000 effective 29 January 2007.  Orders are continuously executed in strict price and time priority.  An order entered into the system at an earlier time must be executed in full before an order at the same price entered at a later time is executed.

Closing Auction Session

The Closing Auction Session (CAS) is applicable to selected securities and consists of four periods: the Reference Price fixing period, order input period, no-cancellation period, and random closing period.

During the Reference Price fixing period, a Reference Price, which sets the allowable upper and lower price limits of the closing auction session (±5 per cent from the Reference Price), is calculated for each security that will have a Closing Auction Session.

During the order input period, at-auction orders and at-auction limit orders within the ±5 per cent price limit can be entered, amended or cancelled.

During the no-cancellation period, prices of new at-auction limit orders must be between the lowest ask and highest bid of the order book, and no orders can be amended or cancelled.

During the random closing period, the order rules from the no-cancellation period apply and the market closes randomly within two minutes.  After the random closing period, orders for all CAS securities are matched at the final IEP.  In cases where final IEP cannot be established during the CAS, the Reference Price will be treated as the final IEP for order matching and will become the closing price of the CAS security.  Order matching is based on order type, price and then time priority (at-auction orders carry a higher matching priority).

Order Types

AMS currently supports the following order types for automatching:

Pre-opening Session and Closing Auction Session

The AMS/3 only accepts at-auction and at-auction limit orders during the Pre-opening Session and Closing Auction Session.  

For Pre-opening Session, the order price input into the AMS/3 cannot deviate 9 times or more from the previous closing price or the nominal price (as the case may be), if available.

For Closing Auction Session, the order price input into the AMS/3 is subject to the two stages price limit.  Stage 1 price limit: is applicable to the Order Input Period and is set at ±5 per cent from the Reference Price.  Stage 2 price limit is applicable to the No Cancellation Period and Random Closing Period and is set at the highest bid and the lowest ask of the order book at the end of the Order Input Period.

  At-auction Order

An at-auction order is an order with no specified price and is entered into the AMS/3 for execution at the final Indicative Equilibrium Price (IEP).  It enjoys a higher order matching priority than an at-auction limit order and will be matched in time priority at the final IEP.

Any outstanding at-auction orders after the end of the Pre-opening Session will be cancelled before the commencement of the Continuous Trading Session.
 

  At-auction Limit Order   

An at-auction limit order is an order with a specified price.  An at-auction limit order with a specified price at or more competitive than the final IEP (in case of buying, the specified price is equal to or higher than the final IEP, or in case of selling, the specified price is equal to or lower than the final IEP) may be matched at the final IEP subject to availability of eligible matching order on the opposite side.  An at-auction limit order will be matched in price and time priority at the final IEP.  No at-auction limit order will be matched at a price worse than the final IEP.  If an IEP cannot be determined during the Closing Auction Session, the Reference Price will serve as the price for matching.  The matching of applicable at-auction orders and at-auction limit orders will occur at the Reference Price instead and the matching mechanism will be same as matching at the IEP.

Any outstanding at-auction limit orders at the end of the Pre-opening Session will be carried forward to the Continuous Trading Session and treated as limit orders provided that the specified price of that at-auction limit order does not deviate 9 times or more from the nominal price.  Such orders will be put in the price queue of the input price.

Continuous Trading Session

The AMS/3 only accepts limit, enhanced limit and special limit orders (with an option for an "All-or-Nothing Qualifier" that confines the order to be either executed immediately in full or rejected without being written into the central order book) during Continuous Trading Session as long as the order price input into the AMS/3 (i) does not deviate 9 times or more from the nominal price, if available, and (ii) follows the quotation rules unless the restriction is waived.At the end of the continuous trading session, all outstanding orders of securities applicable for trading in the closing auction session will be automatically carried forward to the closing auction session provided that the price of buy limit orders is not higher than the allowable upper price limit or the price of sell limit orders is not lower than the allowable lower price limit prescribed for closing auction session.  All outstanding orders carried forward from the continuous trading session to the closing auction session will be treated as at-auction limit orders. 

  Limit Order

A limit order will allow matching only at the specified price.  The sell order input price cannot be made at a price below the best bid price, if available whereas the buy order input price cannot be made at a price above the best ask price, if available.

Any outstanding limit order will be put in the price queue of the input price. 
   

  Enhanced Limit Order  

An enhanced limit order will allow matching of up to 10 price queues (i.e. the best price queue and up to the 10th queue at 9 spreads away) at a time provided that the traded price is not worse than the input price.  The sell order input price cannot be made at a price of 10 spreads (or more) below the current bid price whereas the buy order input price cannot be made at a price of 10 spreads (or more) above the current ask price.  

Any outstanding enhanced limit order will be treated as a limit order and put in the price queue of the input price. 
 

Special Limit Order

A special limit order will allow matching of up to 10 price queues (i.e. the best price queue and up to the 10th queue at 9 spreads away) at a time provided that the traded price is not worse than the input price.  A special limit order has no restriction on the input price as long as the order input price is at or below the best bid price for a sell order or at or above the best ask price for a buy order. 

Any outstanding special limit order will be cancelled and will not be stored in the AMS/3. 
 

Trade Types

AMS currently supports the following trade types:
 

Automatch Trade

An automatch trade is a trade concluded through the AMS by automatic matching of buy and sell orders submitted by Exchange Participant(s).
 

Direct Business Transaction

A direct business transaction refers to the business transacted by an Exchange Participant who acts for both the buyer and the seller, whether as principal or agent.
 

Non-Direct Business Transaction

A non-direct business transaction refers to the business transacted by two Exchange Participants, one as buyer and the other as seller.
 

Manual Trade
A manual trade is a trade concluded by Exchange Participant(s) not through the AMS for which the selling party is responsible to report the trade details to the Exchange through the AMS.
 
Odd Lot Trade
An odd lot trade is a trade with the quantity of shares less than one board lot.
 
Auction Matching Trade
An auction matching trade refers to the automatic order matching of the auction orders during the order matching period in the Pre-opening Session and the Closing Auction Session.  During order matching period, automatic order matching of the auction orders shall be conducted in accordance with Rule 517(1)(a) and no order shall be input into the AMS, amended or cancelled.  All transactions concluded based on the methodology specified in Rule 517(1)(a) during the order matching period shall be deemed to have been concluded at the commencement of the order matching period. 
 
Pre-opening Trade
A pre-opening trade is a trade concluded before the commencement of the Pre-opening Session, including that concluded on the previous day but not recorded in the AMS.

Order and trade information is disseminated to the market and investors through the market data feed, the Exchange's website and other information systems. There is also a news system to display compliance and Exchange news and news on listed companies in both English and Chinese to enhance information dissemination to Exchange Participants and the public.

Quotation Rules

The first bid or ask order entered into the trading system on each trading day is governed by the opening quotation rule. The first order if it is a bid must be higher than or equal to the previous closing price minus twenty-four spreads. The first order if it is an ask must be lower than or equal to the previous closing price plus twenty-four spreads.  The first order, whether it is a bid or ask, shall not in any case deviate 9 times or more from the previous closing price. Quotations for buy and sell orders other than the opening quotations are governed by another set of quotation rules and a scale of spreads. In particular, a buy order or a sell order shall not be made at a price that deviates 9 times or more from the nominal price. However, quotation rules in general do not apply to at-auction limit orders, except that a buy at-auction limit order or a sell at-auction limit order shall not be made at a price that deviates 9 times or more from the nominal price.

The spread table is available under the Second Schedule of the Rules of the Exchange. 

Volatility Control Mechanism

A Volatility Control Mechanism (VCM) in the securities market is only applied on all Hang Seng Index and Hang Seng China Enterprise Index constituent stocks to prevent extreme price volatility from trading incidents such as a “flash crash” and algorithm errors, and to address systemic risks from the inter-connectedness of securities and derivatives markets. 

The VCM is triggered if the potential transaction price of an applicable security deviates more than ±10% away from the last traded price five minutes ago, and a five minutes cooling-off period will start.  During the cooling-off period, trading is allowed within a pre-defined price band.  Normal trading without restriction will resume after cooling-off period.

The VCM is only applicable to board lot order input during certain periods of the Continuous Trading Session.  For details of VCM, please visit our designated VCM and CAS web corner under the Market Operations – Securities Trading Infrastructure webpage.

AMS/3 Trading System

The third generation of the AMS is a trading system developed by the Stock Exchange of Hong Kong Ltd., and was launched on 23 October 2000. The system has gone through several upgrades with the latest version AMS/3.8 launched in December 2011.  For details of AMS/3, please visit our website at Trading System - AMS/3.