Historically different events have driven different VCM model to be chosen in different markets. Hong Kong has been able to learn from the VCM experience of other markets, and HKEX decided that a light-touch and simple model would be most suitable for Hong Kong’s markets since they’ve never had a VCM and may not be familiar with such mechanisms.
HKEX’s proposed VCM is specifically designed to safeguard market integrity from extreme price volatility arising from automated trading (“Flash Crash”, bad algorithms, etc.). It also serves to alert the market with a temporary cooling-off period for the participants to reassess their strategies and positions and make investment decisions. It is not a trading halt, does not intend to limit the ups and downs of stock prices due to fundamental events, and it also does not work the same way as the daily price limit model which sets a specific daily price range for securities trading as seen in some markets.
Special care has been taken in the VCM design to minimise market interruption. For example, it applies to individual instrument rather than the entire market, it is based on a dynamic rather than a static reference price, the triggering level (±10% for securities market and ±5% for derivatives market) is set up such that it would not trigger the VCM too often, the VCM is not applicable in certain periods (the first 15 minutes of the morning and afternoon CTS and the last 15 minutes of the afternoon CTS) and to certain instruments, and the fact that a maximum number of triggers per instrument in each trading session (maximum 1 trigger per instrument per CTS) is imposed to prevent excessive trading interruption.