What are the special features for standard combination in HKATS?
HKATS generates derived order from the price of the outstanding Standard Combination Order and the prevailing market price of each individual leg. In addition, user can enter 'Day', 'Fill-or-Kill (FoK)' and 'Fill-and-Kill (FaK)' order for standard combination series, while Block Trade is not allowed to be executed. As all the combination series expire and rebuilt on a daily basis, no 'Good Till Cancel (GTC)' order is allowed.
What is Standard Combination Order?
Standard Combination Order is the simultaneous purchase and/or sale of two different series with the same underlying. Each standard combination series is pre-defined by HKEX as a combination strategy with two legs in HKATS. Traders in HSI Futures market have been using Standard Combination Order in HKATS for calendar spreads (i.e. buy and sell two futures contracts with different expiration date simultaneously) in order to roll their open positions from spot month to the next month since June 2000. The orders have been used actively in futures trading, especially approaching the end of each calendar month.
What is the price reporting mechanism for standard combination trade?
Standard combination trades are reported in corresponding legs of the standard combination series. All standard combination trades are reported in HKATS through the Ticker, Company Trades and Clearing Trades windows. Standard combination versus standard combination trades will carry the deal flag, 'STC', while standard combination versus outright trades will be marked as ‘Cbo v. Outr’.
Is there any market maker for standard combination series?
There is no market maker for standard combination series and existing market makers have no obligation in responding quote request on standard combination series. On the other hand, the quotation from individual legs will be indirectly reflected on the standard combination order due to generation of derived order(s).
What are the benefits of using the standard combination order?
The benefit of using standard combination order is that it can be placed as a limit order instead of a market order, making each order visible to all HKATS users. Also, the transaction cost is likely to be reduced in terms of the spreads between the limit price and the bid/ask prices.
When would the Exchange notify broker on the cancellation of invalid Block Trade?
Within 30 minutes of the execution of the Block Trade, the Exchange endeavour to notify the Exchange Participants if any criteria (such as permissible price range, minimum volume threshold) have not been met or any special margin is required. If all criteria have been met and the special margin could be settled within the prescribed time, the Block Trade would be novated and guaranteed by the Clearing House without further notice.
What are the differences between the Price Limit Up/Down Mechanism and Trading Halt Mechanism?
The Price Limit Up/Down Mechanism applies to Futures Trading in T+1 Session. It would be triggered when the traded price reaches upper/lower price limit or the highest bid (lowest ask) of the buying (selling) queue reaches upper (lower) price limit, etc. When the Price Limit Up/Down Mechanism is reached, a market message would be broadcasted in HKATS. Trades within the price limit would be matched continuously.
THM applies to Options Trading in T+1 Session only. THM would be triggered only when the highest bid in the buying queue reaches the upper price limit or the lowest ask in the selling queue reaches the lower price limit. Once the Trading Halt Mechanism for an equity index option is triggered, trading of the concerned THM Exchange Contract would be suspended immediately for the remaining T+1 Session.
What are the purposes for introducing AHT?
The introduction of AHT would provide trading/hedging opportunities to investors in case there is a big event happening in the European or US market and that the client base and after-hours business would be increased. AHT could reduce the volatility in the next day’s opening as some investors would have hedged or adjusted their positions in the T+1 Session in response to news and events in the European or US time zones.
What will happen to the orders during Trading Halt?
The orders of the halted THM Exchange Contract will remain in the order book but will not be matched. EPs may amend or cancel any of their existing orders. The amendment of order during the trading halt is confined to the following:
1. Modify information in Cust and/or Info Fields
2. Change duration of validity
3. Decrease quantity
What would be the trading arrangement for Block Trade Facility (BTF) in AHT?
The trading arrangement of BTF in AHT is the same as that in the T Session, except that:
- block trade prices for futures will also be subject to the +/-5% price limit in T+1 Session; and
- Special Block Trade Margin (SBTM) will be applied as usual. However, as there is no banking support during T+1 Session, any block trade and/or related trade adjustment will be rejected if there is insufficient collateral in relevant participant’s CCMS Collateral Account to satisfy the SBTM.
What are the products available for trading in AHT?
Hang Seng Index (HSI) futures and options, H-shares Index (HHI) futures and options, Mini HSI (MHI) futures and options, Mini H-shares Index (MCH) futures and options, RMB currency futures, London Metal Mini Futures, Gold Futures, Iron Ore Futures, MSCI Asia ex Japan Index Futures and Total Return Index Futures (“TRI Futures”) are available for trading in AHT.
Why would there be a price limit up/down mechanism for AHT? Would price limit mechanism be introduced in T Session as well?
We believe a price limit will provide some assurance to EPs/CPs that the client margin would not be exhausted by any excessive price movement in the T+1 Session. In general, the minimum clearing house margin for stock index futures is 5% (minimum client margin is about 6%). If the price limit is set at up/down 5%,EPs/CPs might have an additional safeguard in terms of client margin management. After the market opens on the next day and banking services are available, EPs/CPs can handle their clients’ margin in the usual way. From clients’ point of view, their open positions would not be force-closed out during the T+1 Session due to exhaustion of margin deposit with their brokers.
Major derivatives exchanges also have similar price limit arrangements in their after-hours index futures trading.
The price limit up/down mechanism is as follows.
a) No sell order of price below 95% and no buy order of price above 105% of the last traded price of the spot month contract in the T Session are allowed in the T+1 Session.
b) Trading (for all contract months) will be allowed only within the price limit range during the T+1 Session.
c) The price limit of 5% will be reviewed after implementation.
Trading in T Session would not be subject to this price limit up/down mechanism.
Is TMC allowed in AHT?
Tailor-Made Combination trades are available in AHT session for Hang Seng Index (HSI) futures and options, H-shares Index (HHI) futures and options, Mini HSI (MHI) futures and options, Mini H-shares Index (MCH) futures and options only.
Is it compulsory for EPs to participate the AHT?
It is not compulsory for EPs to participate the AHT as different EPs may have different considerations such as their clients’ trading interest and operational / resources requirements. Whether to participate in AHT is a business decision for each EP to make on its own. We anticipate that for EPs which are currently offering European or U.S. derivatives trading for their clients, AHT will be an opportunity to expand their existing business with limited operational impact.
What should be done for EPs without night desk operations?
For EPs currently without night desk operations, they may consider the needs of their clients and the potential business prospect and decide whether they will participate or only provide limited services to their clients in after-hours trading. In any event, EPs should ensure that they observe the SFC’s Code of Conduct when dealing with clients on all matters in relation to the AHT.
What is the impact to those EPs that decide not to participate?
Those EPs should assess the business opportunities in AHT and their services to be provided to their clients during the AHT. If they decide not to participate in AHT, they need to ensure that their clients are aware that they would not accept clients’ orders during and for the T+1 Session. Theymay face pressure from their clients who would like to participate in T+1 Session and they may run a risk in losing these clients too.
What is the clearing arrangement for AHT?
Trades executed in the T+1 Session will be registered as the following Business Day’s trades, together with trades executed in the following Business Day’s T Session. The DCASS services will start at 7:30 a.m. for respective AHT products until System Input Cutoff Time.
Positions are maintained according to clearing dates and separate records are held at all times for T day and T+1 day positions. T day positions will be finalized at System Input Cutoff Time and subject to day-end margin calculation. T+1 day positions will be finalized at T+1 Session Cutoff Time. These T+1 day positions will become T day’s opening positions on the following Business Day, i.e. the T day’s positions are made up of positions created during the T Session on that Business Day plus trades / post-trades executed during the T+1 Session of the previous Business Day.
For trades executed in the T+1 Session, Participants can perform post-trades (i) up to the T+1 Session Cutoff Time; and/or (ii) from 7:30 a.m. on the next Business Day till System Input Cutoff Time. If Participants want to incorporate those trades executed in the previous T+1 Session in the calculation of mandatory intra-day variation adjustment and margin, they should complete the post-trade activities 30 minutes before market open of the corresponding products.
Remarks: For any discrepancies between this FAQ and the HKCC Rules & Operational Procedures, the HKCC Rules & Operational Procedures shall prevail.
What would be the risk management arrangement for AHT?
In the absence of a level of banking support to facilitate intra-day call capability during the T+1 Session similar to that during the T Session, the following additional risk management measures will be implemented to mitigate the counterparty risks associated with AHT.
- Perform monitoring of CPs’ net capital-based position limit (CBPL) based on both the current market prices and positions at regular intervals during the T+1 Session, supplemented by ad-hoc CBPL monitoring. CPs breaching their CBPL will be requested to reduce their exposure to ensure their CBPL compliance. CPs may be disconnected from the HKEX trading system and subject to closing out action by HKEX should they fail to comply with such request or further increase their exposure.
- A mandatory variation adjustment (VA) and margin call to markets (based on the morning Calculated Opening Prices (COP) or market price shortly after the market open if COP is not available) with T+1 Session will be introduced following the market open of each T Session. Unlike the current ad-hoc intra-day call which includes VA only, this mandatory call will include both VA and margin of all positions as of thirty minutes before the relevant market open of the morning trading session. The call will be issued to CPs by 10:00 a.m. and the payment shall be settled by 12:00 noon. The Calculated Opening Price is the equilibrium market price derived from the price discovery period of thirty minutes before the opening of the morning trading session.
- There will be no intra-day variation adjustment or margin call during the T+1 Session.
Would there be any Risk Parameter Files (RPFs) during AHT session for CPs reference?
Risk Parameter Files (RPF) are generated for AHT Capital Based Position Limit (CBPL) monitoring and will be made available for download hourly in AHT Session under normal circumstances. Please note that these RPFs are calculated based on latest market prices and are for CPs’ reference only. They may not be equivalent to the RPFs that require actual money settlement.
Is there any kind of order type allowed in AHT_PRE_MKT_session?
This should be the same as the normal pre-market session, i.e., no new orders can be entered but instead change (not affecting order priority)/cancel T+1 orders are allowed. Since there is no pre-opening session (auction session) for AHT so no auction order is allowed.
What are the design principles behind the VCM model for Hong Kong?
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.
How does the VCM model work?
HKEX has adopted a dynamic price limit VCM model for the securities and derivatives markets, which would trigger a cooling-off period in case of abrupt price volatility detected at the instrument level.
- The VCM is only applicable for board lot order input during the Continuous Trading Session (CTS), but not for any orders input during the Pre-opening Session (POS) and the CAS.
- During the CTS, the potential trade price of a VCM security will be continuously checked against a dynamic price limit of ±10% based upon the reference price (±5%, for the derivatives market) which is the last traded price 5 minutes ago.
- The VCM is triggered if a stock is ±10% away (or if a futures contract is ±5% away) from the last traded price 5-min ago; A 5-min cooling-off period will start.
- For each VCM instrument, there will be a maximum of one VCM trigger in each trading session (Morning Session and Afternoon Session are counted as two separate trading sessions).
- Normal trading without restriction will resume on the VCM-triggered instrument after the cooling-off period. There will not be any VCM monitoring on the VCM-triggered instrument within the same trading session.
What instruments are covered under the VCM? Would it be extended to cover all securities in the future?
For the securities market, the VCM would cover Hang Seng Index (HSI) and Hang Seng China Enterprise Index (HSCEI) constituent stocks (as of 31 July 2016 there are 81 such stocks listed on the Stock Exchange of Hong Kong).
The finalized list of the VCM securities would be published on the HKEX website before the launch of the VCM. Any addition of constituent stocks to the HSI or HSCEI subsequently will also be added to the list of VCM securities on the effective date of the addition. Similarly, any deletion of constituent stocks from the HSI or HSCEI will also be removed from the list VCM securities on the effective date of the deletion.
For the derivatives market, the VCM would cover spot and next calendar month index futures contracts with HSI or HSCEI as their underlying index (currently 8 futures contracts).
HKEX currently has no plan to include more instruments in the securities or derivatives markets which would be subject to the VCM.
What is the applicable period for VCM monitoring?
VCM monitoring is applicable to continuous trading session (CTS), excluding:
- the first 15 minutes of the morning and afternoon trading session
- the last 20 minutes of the afternoon trading session
- the After-Hours Futures Trading session in the derivatives market
* Since a cooling-off period will last for 5 minutes, the monitoring will stop 20 minutes before end of the Afternoon Session
Can derivative warrants or CBBCs be traded during the 5-minute cooling-off period after the triggering of the VCM?
Since the affected underlying security or index is not suspended and continues to trade within a specified price limit during the 5-minute cooling off period after the triggering of the VCM, the derivative warrants and CBBCs can still be traded without any price limit.
However, investors should note that where events surrounding VCM causes abnormal trading behavior of the underlying leading to hedging difficulties, the liquidity provision obligations of issuers could be exempted. In this case, there may be a temporary absence of price quotes, a reduction in quote size, or a wider bid-ask spread during the 5-minute cooling-off period.
How will the provision of Active Quotes be affected for a warrant/CBBC when the underlying security is subject to VCM?
Investors should be aware that standards for Active Quotes described in the Industry Principles are intended to apply to normal market conditions. Provision of Active Quotes may be affected where there are abnormal or exceptional market conditions.
Quotes provided by liquidity providers necessarily reflect the liquidity of the underlying securities or indices at any given time. If the liquidity of the underlying is impaired by conditions surrounding a VCM event, or by the VCM itself, the liquidity of the warrant or CBBC may be adversely affected in terms of quote size and spread relative to more normal market conditions.
During the 5-minute cooling off period after triggering of the VCM, where issuers’ hedging ability is materially affected due to the uncertainty in the underlying securities or index, it is possible that the minimum service level for Active Quotes will not be fulfilled, such as no bid-ask quotations, widening of bid-ask spread and reduction in quote size.
Similarly, after the 5-minute cooling off period, liquidity provision may still be affected if issuers continue to experience hedging difficulties. Under such circumstances, Liquidity
Providers may not fulfil the minimum service level for Active Quotes as described in the Industry Principles.
However, issuers will use best efforts to meet quote request requirements.
* Industry Principles on Liquidity Provision for Listed Structured Products (July 2012) published by the Exchange, available at (http://www.hkex.com.hk/eng/prod/secprod/dwrc/Documents/principle.pdf).
Would VCM Trigger (23) message be disseminated to indicate the end of the cooling-off period?
For each cooling-off triggered by the VCM, a VCM Trigger (23) message would be disseminated in OTP-C when the cooling-off period begins for specific securities or futures contract. The message provides, among other related information, both the start time and end time of the cooling-off period. There would be no other messages to indicate the end of the cooling-off period.
What is HKATS?
Hong Kong Futures Automated Trading System (HKATS) is the electronic trading system for the HKEX derivatives market. Trading is conducted via workstations or Open Application Programming Interfaces (OAPI) located at the premises of Futures Exchange Participants and Stock Options Exchange Participants.
HKATS provides real-time data such as traded price and quantity, day high/low, turnover, price depth and order depth. Users can view real-time price information on a computer screen, click on a bid or ask price and execute an order.
With HKATS, Exchange Participants can provide their clients with full electronic order routing, straight-through trade processing and other value-added services, and also supply detailed information such as the exact time of order placement and execution.
The Hong Kong Futures Exchange began introducing electronic trading in November 1995, when open outcry trading was still the main trading method among international derivatives exchanges. The electronic trading system was subsequently upgraded and was renamed HKATS in April 1999. Since then, there have been a number of upgrades of the HKATS hardware and software.
For more information about HKATS, please refer to "Derivatives Trading Infrastructure" under the "Market Operations" section of the HKEX website.
Does HKEX have contingency/recovery plans if its securities or derivatives trading system fails?
In the event of trading system or equipment failure, contingency measures are in place to resume trading as soon as possible.
In case of service interruptions caused by fire or major hardware failure at the OTP-C or HKATS primary site, trading will switch to the OTP-C or HKATS backup system at the backup site. Site failover will normally take 45 minutes to 1.5 hours, and reasonable time will be allowed to inform the market before trading resumes.
Will HKEX compensate those who suffer losses due to market system failure?
HKEX has exercised Due Diligence to ensure the normal functioning and operation of its market systems. HKEX has also developed a set of contingency arrangements to cope with system emergencies. According to the Securities and Futures Ordinance, HKEX will not incur liability in respect of anything done or omitted to be done in good faith.
What kinds of investors are suitable for trading in futures and options?
Futures and options are not for all investors given their higher inherent risks than many other products. Investors should consider their tolerance for market volatility and losses, and consult their brokers or qualified financial advisers to see whether futures and options fit their personal needs.
What are the risks to be considered before trading in futures and options?
There are a number of risks inherent in futures and options trading. Some major ones are summarised below, but the information is by no means exhaustive. Investors should make sure they understand the nature of a contract and the inherent risks before trading.
The “leverage” effect brings substantial risk
The amount of initial margin is small relative to the value of the futures contract so that transactions are 'leveraged'. This may work against investors as well as for investors as a relatively small market movement will have a proportionately large impact on the funds invested or to be invested. Investors may therefore sustain a total loss of initial margin funds and any additional funds deposited with brokers to maintain their positions. If the market moves against their positions or margin levels are increased, investors may be called upon to pay substantial additional funds on short notice to maintain their position. If they fail to comply with a request for additional funds within the time prescribed, their positions may be liquidated at a loss and they will be liable for any resulting deficit.
Risk-reducing strategies may not be effective
The placing of limit orders or stop-loss orders may not be effective because market conditions may make it impossible to execute such orders. Strategies using combinations of positions, such as 'spread' positions may be as risky as taking simple 'long' or 'short' positions.
Variable degrees of risks
Purchasers and sellers of options should familiarise themselves with the type of options (i.e. put or call) which they contemplate trading and the associated risks. Investors should calculate the extent to which the value of the options must increase for their position to become profitable, taking into account the premium and all transaction costs.
The purchaser of options may offset or exercise the options or allow the options to expire. The exercise of an option results either in a cash settlement or in the purchaser acquiring or delivering the underlying interest. If the purchased options expire worthless, investors will suffer a total loss of their investment which will consist of the options premium plus transaction costs. If investors are contemplating purchasing deep-out-of-the-money options, they should be aware that the chance of such options becoming profitable ordinarily is remote.
Selling options generally entails considerably greater risk than purchasing options. Although the premium received by the seller is fixed, the seller may sustain a loss well in excess of that amount. The seller will be liable for additional margin to maintain the position if the market moves unfavourably against him. The seller will also be exposed to the risk of the purchaser exercising the options and the seller being obligated to either settle the options in cash or to acquire or deliver the underlying interest. If the options are 'covered' by the seller holding a corresponding position in the underlying interest or a futures or other options contracts, the risk may be reduced. If the options are not covered, the risk of loss can be unlimited.
Terms and conditions of contracts
Investors should ask their brokers about the terms and conditions of the specific futures or options contracts and associated obligations (e.g. the circumstances under which investors may become obliged to make or take delivery of the underlying asset of a futures contract and, in respect of options, expiration dates and restrictions on the time for exercise). Under certain circumstances (e.g. the issue of bonus shares by a listed company or payment of large special dividends), the specifications of outstanding contracts (including the exercise price of options) may be modified by HKEX to reflect changes in the underlying asset.
Suspension or restriction of trading
Market conditions (e.g. illiquidity) and/or the operation of the rules of certain markets may increase the risk of loss by making it difficult or impossible to effect transactions or liquidate/offset positions. If investors have sold options, this may increase the risk of loss.
What are the trading hours of the HKEX derivatives market?
Like the securities market, trading in the Hong Kong derivatives market is conducted Monday to Friday (except public holidays). However, the trading hours (including the last trading date, the expiry date and the final settlement date) of different derivatives may vary. For details, investors may refer to the trading calendar and the contract summary of each product in “Derivatives Products
” under the “Products & Services
” section of the HKEX website.
What is the function of the pre-market opening session in Hong Kong’s derivatives market?
The pre-market opening session helps establish an orderly market open when the trading system is loaded with large numbers of orders and provides the market with a fair mechanism to determine the calculated opening prices (COP) at which the largest possible number of contracts may be traded, based on a predetermined formula. This helps to maintain order at the market open and minimise price fluctuation. During the pre-market opening session, the COP is established before the market open without matching orders.
At present, the pre-market opening session is only available for the trading of Hang Seng Index futures, Mini-Hang Seng Index futures and H-shares Index futures.
What is Calculated Opening Price (COP)?
During the pre-market opening session, a COP will be calculated if the highest bid price of the limit orders entered into electronic trading system is greater than or equal to the lowest ask price of the limit orders, and the price will serve as the market opening price for the corresponding product. If more than one price satisfies this criterion, the COP will be calculated according to the established formula set forth in Rule 4.83 of the trading procedures for stock index futures and options under the Rules, Regulations and Procedures of the Futures Exchange. The rules are available in the “Rules and Regulations
” section of the HKEX website.
What are the charges involved in futures and options trading?
Futures and options brokerage is negotiable between brokers and their clients. All futures and options traded on HKEX's derivatives market are stamp duty free. Other charges including the Exchange Trading Fee and the SFC(Securities and Futures Commission) Levy vary from one product to another. Investors should consult their brokers and read carefully the contract specifications before trading. Details of trading fees are available in the “Derivatives Products
” under the “Products & Services
” section of the HKEX website.
Why is it necessary to pay margin for trading futures and selling options contracts?
The clearing houses of HKEX acts as the central counterparty to both the buyer and seller of futures and options so that the counterparty risk of both parties is limited to a single counterparty.
As the central counterparty, it is the clearing house’s statutory duty to manage the risks associated with the clearing and settlement business in order to maintain a stable and orderly clearing and settlement system for the different exchange traded financial products. To this end, HKEX use a series of risk control measures, and one of them is the margin requirement.
Clearing House Participants (i.e. brokers) are required to pay to the clearing house a Clearing House Margin in respect of their open interest (held by the Participants themselves or for their clients). Clearing House Participants in turn charge their clients an amount not less than the Client Margin. There are two types of Client Margin: Initial Margin and Maintenance Margin. The amount of margin is determined by the clearing house using a programme named Portfolio Risk Margining System of HKEX (PRiME) taking into account the historical price volatility of the underlying products (e.g. stocks, indices etc), market conditions and other relevant factors. When opening a position, an investor is required to pay an initial margin to a Clearing House Participant, which then calculates the floating profits or losses of the investor’s position each day after the market close and credits or debits the margin balance accordingly. If the initial margin deposit falls below the maintenance margin, a margin call will be issued, and the investor must deposit additional funds to restore the account to the initial margin level if he does not want to close the position.
How do investors know the futures or options margin requirements?
The margin charged by brokers may vary depending on their assessment of the financial conditions and position of a particular client, but will not be less than the minimum amount stipulated by HKEX. HKEX prepares on a daily basis a margin reference table using historical figures. Brokers may refer to the table when assessing the client margin every trading day. The margin reference table is posted at “Derivatives Products
” under the “Products & Services
” section of the HKEX website. It should be noted that the margin reference table only sets out the minimum margin. The exact margin charged by brokers depends on the financial conditions of each particular client.
What is Close Out?
Futures – An investor can close out his position by buying or selling futures contracts of the same expiry date and quantity but in the opposite direction in order to offset his original position. After the position is closed out, he will no longer have any position in the same futures contracts in his account.
Options – Where an investor makes an opposite order after buying options contracts, i.e. selling the same quantity of options contracts, his position in the options contracts will be closed out.
What is Open Interest?
Open Interest is the total number of futures or options contracts that have been bought or sold, but not settled by offsetting transactions or fulfilled by delivery of the underlying asset. Each open transaction has a buyer and a seller, but for the calculation of open interest, only one side of the contract is counted by the clearing house.
What is Roll-over?
Roll-over involves closing out the expiring position in futures/options contracts first and opening a new position with a later expiry date but the same contract specifications. For example, an investor who has opened a short position in Hang Seng Index futures contracts which expire in September but remains bearish on the performance of the Hang Seng index in October may close out the September contracts and open a short position in Hang Seng index futures for October expiry. The move to renew a futures contract is called roll-over.
What are the orders commonly used in futures and options trading?
Orders that are more commonly used are set out below. Investors should contact their brokers to see if they provide the relevant services before placing an order.
Auction Order - An Auction Order is an order where a bid or offer price is not specified and is entered during the pre-market opening session for execution at the Calculated Opening Price (COP). Given the difference in the quantity of buy orders and sell orders during the auction session, not all auction orders may be matched. Unmatched auction orders will be converted to limit orders at COP, or the best bid or the best ask after the market opens. Where investors predict the market will go up or down at market open, they may input auction orders to buy or sell their contracts at the opening price before the market opens.
Limit Order - A limit order is an order to buy or sell at a specific price or a better price. Investors who do not feel there is an urgent need to execute a trade or who are determined to try to capture the short-term trend in price may input limit orders to try to buy or sell contracts at the price they have in mind.
Market Order - A market order is an order to buy or sell immediately at the current available price without any price restriction. For investors who feel there is an urgent need to buy or sell contracts, the quickest way to execute a trade is to input a market order. However, investors should note that the execution price may deviate from the price they have in mind.
Stop Order - A stop order is an order to buy or sell at a specified price. Where the current market price is the same as the specified price, the stop order will be converted into a market order immediately. During futures trading, a stop order is often used to close out investors’ positions to minimise losses and manage risks. Therefore, a stop order is also known as the stop-loss order.
To increase order flexibility, additional instructions may accompany an order input. Some commonly used instructions are set out below.
Rest of Day - Orders are valid only on the trading day indicated by investors, and become invalid after the market close.
Fill or Kill - Applicable to a limit order only. Where the order cannot be matched at the exact quantity of contracts at the specified price, it will be cancelled automatically at once and will not be executed. For example, an order to buy 10 contracts will be cancelled if there are only five contracts available in the market at the moment.
Fill and Kill - Applicable to a limit order only. Its purpose is to execute as many contracts specified in the order as possible and cancel the remaining unmatched portion. For example, if an investor intends to buy 10 contracts but there are only six available in the market, six contracts will be bought, the remaining four will not be bought and the unfilled part of the order will be cancelled.
Will investors be given any acknowledgement after trading in futures and options?
Like trading in securities, brokers issue a contract note to their clients upon the closing of a transaction or their clients will receive a daily activity statement after the market closes on the day the transaction is completed. All relevant information of the transaction and the balance of the account at the cut-off date are covered therein. In addition, a statement of account is issued by brokers on a monthly basis. Investors should check carefully the information on these statements.
What are the key changes in relation to the renewed SDNet/2 service contracts between HKEX and Accredited Vendors’?
HKEX has renewed the SDNet/2 service contracts with the three existing Accredited Vendors effective from 1 March 2016 and below are the key changes :
- Capped prices will only be available for 1Mbps to 20Mbps circuits and there will be NO capped price for circuits with bandwidth of 30Mbps or above. The new pricing arrangement is applicable to monthly tariff, installation charge and standby service fee.
- There is also change to certain one-off charge e.g. circuit bandwidth upgrade/downgrade, reconfiguration and relocation fee of specific Accredited Vendors.
- Introduction of Application Service Provider (ASP) circuit connection to SDNet/2
What is the installation cost of SDNet/2 circuits?
EPs/CPs/CMs/ IVs are advised to contact the Accredited Vendors directly for the prices of SDNet/2 circuit and related services.
Currently, there are some situations where the Accredited Vendors are not allowed to install fibre cables (e.g. inside premises of data centre service providers or buildings whose building & management offices who sell their own fibre cables). EPs/CPs/CMs/IVs may need to bear the extra services cost charged by third parties. In such cases, EPs/CPs/CMs/IVs are advised to check with the Accredited Vendors because the degrees of installed fibre at each building by different Accredited Vendors may vary.
Due to the fact that the installation environment varies in different sites, the selected Accredited Vendor will carry out site visit to the offices of EPs/CPs/CMs/IVs and will discuss with the EPs/CPs/CMs/IVs on the facilities required for the circuit installation. Therefore, EPs/CPs/CMs/IVs should check with the Accredited Vendors if there is any extra cost required for the circuit installation according to actual situation.
After installation of the SDNet/2 circuits, can EPs/CPs/CMs/IVs terminate the service contract any time and change to another Accredited Vendor?
The minimum subscription period of SDNet/2 circuit is 3 months.
If EPs/CPs/CMs/IVs wish to terminate the service within the minimum subscription period, they can submit 1 month’s advance notice to the respective Accredited Vendor to terminate the service at the end of the 2nd month.
After the 3-months minimum subscription period, EPs/CPs/CMs/IVs can terminate the service by giving 1 month’s advance termination notice to the respective Accredited Vendor.
Accredited Vendor has the right to ask for any remaining or outstanding payment due to the service termination. EPs/CPs/CMs/IVs should check with Accredited Vendor beforehand whether it is applicable for its service terms and conditions.
How should EPs/CPs/CMs/IV/s select their Accredited Vendors?
All Accredited Vendors must provide SDNet/2 service according to the pre-defined technical requirements from HKEX. Technically, SDNet/2 circuits provided by all Accredited Vendors are fully compatible with the market systems of HKEX.
EPs/CPs/CMs/IVs are advised to contact their selected Accredited Vendors and consider the commercial offers and services provided by individual Accredited Vendor. EPs/CPs/CMs/IVs are advised to select Accredited Vendors according to their own business needs. Before selection, EPs/CPs/CMs/IVs are advised to study carefully the terms and conditions offered by the individual Accredited Vendor
If EPs/CPs/CMs/IVs want to downgrade the SDNet circuit bandwidth, would it affect the existing connections?
EPs/CPs/CMs/IVs should subscribe not lower than the specified minimum bandwidth. The minimum bandwidth requirements of the respective market systems can be found in the [Price Information /Technical Specification/Service level of SDNet/2 or OMD Connectivity Guide]
EPs/CPs/CMs/IVs may subscribe more than the minimum bandwidth from the Accredited Vendors in accordance with their business needs.
What is ASP connection?
ASP (”Application Service Provider”) is the service provider providing shared SDNet/2 circuit services connectivity to multiple EPs/CPs/CMs/IVs. Under the ASP connection service, ASP will subscribe the SDNet/2 circuits from the Accredited Vendor(s) and manage the network connectivity on behalf of the EPs/CPs/CMs/IVs.
ASPs should contact the Accredited Vendor regarding the application of ASP connections and HKEX-IS on the data licensing requirement.
EPs/CPs/CMs/IVs should contact their respective software/system providers regarding the ASP connection services.
Who are eligible to apply for ASP connection?
The ASP connection initiative aims to enhance the infrastructure efficiency of the application providers who are also providing managed services to market participants. Therefore, BSS vendors / OAPI developers / Market Data ASPs are eligible to apply for the ASP connections. However, HKEX reserves the right of final decision.
What application accesses can be aggregated on an ASP connection?
Currently, the HKEX Application accesses allowed to be aggregated on ASP connection are listed as follow:
Cash Market and China Connect Market: OCG, OMD-C, CCCG, OMD-CC
Derivatives Market: HKATS connection through Central Gateway, DCASS connection through Central Gateway, OMD-D
Market segregation is required, which means that an ASP connection may only access to either Cash Market and China Connect Market applications or Derivatives Market applications.