HKEX acknowledged the market’s concern on price volatility in the CAS, so it proposed implementing a price limit. It should be noted that most markets do not have a price limit in their closing auction, and a 5 per cent price limit is the narrowest among those with a price limit.
When HKEX had a closing auction in 2008, it announced at one point that it would implement a 2 per cent price limit, but the closing auction was suspended before the limit was implemented. The price limit was the only proposed measure to curb price instability then and hence a 2 per cent limit was proposed, although many market participants commented then that it would be too restrictive to trading. The CAS has a number of other price control measures so the price limit need not be as restrictive as a 2 per cent limit.
Based on daily trading statistics, a 2 per cent limit would be overly restrictive to trading and would make it difficult for many stocks orders to be completed at the close both on normal days as well as on index rebalancing days. Market participants might place orders with more aggressive prices or trade ahead of the market close under such circumstances and hence reduce the utility of the CAS. Also, HKEX noted that even today, some stocks may fluctuate more than 5 per cent within a few minutes, and the 5 per cent price limit is still not wide enough for these stocks.
HKEX have therefore decided to proceed with the original proposal, i.e. introducing a 5 per cent price limit first during the Order Input Period, which balances retail and institutional market feedback and the strong need to address the price volatility issue. The 5 per cent price limit may be subject to review in the future.