What is DCASS?
DCASS stands for Derivatives And Settlement System which serves as a single clearing and settlement system for both the HKFE Clearing Corporation Limited (HKCC) and The SEHK Options Clearing House Limited (SEOCH). DCASS was launched since April 2004 and has been upgraded to Genium INET Platform in October 2013.
DCASS shares the same platform and infrastructure with the derivatives trading system, HKATS. HKATS and DCASS form the integrated trading and clearing system for the derivatives markets of HKEX.
What are the DCASS connection fees?
Each DCASS connection (either via DCASS Terminal or OAPI application) is subject to a DCASS sub-license fee, as follows:
via Participant’s Network Gateways
HK$1,750 per month per DCASS connection
via HKEX’s Central Gateways
HK$2,600 per month per DCASS connection
For DCASS connection via Network Gateways, each Network Gateway will be subject to a one time installation cost of HK$8,500 and a monthly recurring cost of HK$3,000.
Moreover, regarding the monthly recurring service cost for the telecommunication lines, please refer to the contact details of the Accredited Vendors at HKEX website.
What is DCASS Server?
DCASS Server is a machine that is installed with server application and MUST be located in Hong Kong. It is connected to DCASS Host via the dedicated telecommunication lines (SDNet).
A DCASS Server can also serve as a DCASS Terminal.
What is DCASS Terminal?
Participants can access DCASS through the DCASS Terminal which is designed to support Participant with low to medium clearing volume as it facilitates manual input of post trade activities. DCASS Terminal is connected through DCASS Server via Participants’ Network Gateways or HKEX’s Central Gateways.
What are the differences of having DCASS connection via HKEX's CG and Participants’ NGs?
Connection via HKEX’s CG
By using CG, Participants may be able to reduce the setup and the maintenance cost of NG hardware to be housed in their offices. In case of failure of HKEX’s CG, HKEX can arrange contingency gateway for Participants shortly in order to mitigate the disruption to Participants’ normal operations. Besides, any future enhancement of CG is at HKEX’s own cost.
Connection via Participants’ NGs
If Participants opt to choose NGs for DCASS connection, they have to bear the acquisition cost of NG and the on-going maintenance. In case of failure of Participants’ NGs, Participants have to seek support from their vendors and can also request for the use of HKEX’s contingency gateway which is subject to charge. Lastly, as a transitional arrangement, HKEX will support DCASS connection via NGs until 2017, tentatively.
The maximum number of connections (HKATS + DCASS) to each HKATS Network Gateway (NG) is 10. Participant can install any number of DCASS Server to a HKATS NG provided the total number of HKATS and DCASS connections does not exceed 10 and there is sufficient bandwidth of SDNet/2.
Another alternative is to install a dedicated NG for DCASS, which can be connected to a maximum of 10 DCASS Servers and OAPI applications provided that there is sufficient bandwidth of SDNet/2.
A pair of 3Mbps SDNet/2 lines is optimal for supporting 1 DCASS Server plus up to 3 non-report download related OAPI applications. Please note that Clearing Houses have the absolute discretion to terminate the Participant’s connection with DCASS if the minimum SDNet/2 bandwidth requirement is not fulfilled.
Should Participant power off the DCASS Server before leaving the office?
Participant should not power off any DCASS Servers on a daily basis. If the DCASS Server is powered off, Participants will not be able to receive day end DCASS reports transmitted from DCASS Host promptly.
Participant should logout from DCASS Terminals before they leave the office and keep the DCASS Servers remain "POWER ON". DCASS Servers should only be powered off and rebooted during weekends and public holidays.
Should Participant perform any housekeeping tasks to the DCASS Server?
|Participants are advised to:
Reboot of DCASS Server at least on a weekly basis, preferably during weekend.Please refer to Section 220.127.116.11 of DCASS Terminal User Guide for details
Monitoring of DCASS Server database size usage on a regular basis,to ensure normal database size and smooth operations.Please refer to Section 18.104.22.168 of DCASS Terminal User Guide for details
Synchronise the PC clock of the DCASS Server with the Hong Kong Observatory at least on a monthly basis
||Ensure the defaulted housekeeping job can run on the DCASS Server as scheduled.
|Can Participant install the DCASS Terminals in their overseas branch offices?
Participants can install DCASS Terminals in their overseas branch office, provided that (i) they have obtained HKEX’s approval for remote clearing operations; and (ii) they can arrange connection between their Hong Kong and overseas offices. Participants should note that HKEX would not provide any support for the DCASS Terminals installed in their overseas offices and Participants need to perform their own DCASS Terminals commissioning.
When can Participants perform post-trade activities like give-up, take-up, trade rectification, etc. via DCASS?
Participants can start to perform post-trade activities input from 7:30 a.m. to 6:45 p.m. for major markets. Post-trade activities for Stock Index Futures will be available till 12:30 a.m. on next calendar day, while post-trade activities for London Metal Mini Futures, RMB Currency Futures and Gold Futures will be available till 1:45 a.m. on next calendar day. If the input is performed outside the stipulated time period, an error message "Illegal transaction time" will be prompted in the DCASS Terminal.
DCASS online for T Session will be closed at 6:45 p.m. on each business day, including the expiry day of options and the last trading day of futures. Participants should ensure that they have completed their inputs before the stipulated cutoff time.
Moreover, Participants are strongly encouraged to complete their daily post-trade activities 30 minutes before 6:45 p.m. The remaining 30 minutes to 6:45 p.m. should be treated as the Emergency Buffer for post-trade input.
For details of the DCASS operation timeline, please refer to 1.3 of the DCASS Terminal User Guide.
What should Participants do if they expect that they could not complete their post-trade activities for T Session before the System Input Cutoff Time (i.e. 6:45 p.m.)?
If a Participant expects that it cannot meet the System Input Cutoff time of 6:45 p.m., he should contact the Clearing House at 2211-6932 as soon as possible. Participant should complete and submit the duly authorized on-behalf input request forms to the Clearing Houses before 6:45 p.m. The Clearing Houses would perform the input on the Participant's behalf on a best effort basis
, depending on the resources available at the time. The Clearing Houses will not accept any on-behalf input request forms submitted after the deadline of 6:45 p.m.
On-behalf input will be subject to a charge as stipulated in the Rules and Procedures of the Clearing Houses. Processing charge for on-behalf input is $50 per transaction with a minimum charge of $500 per day.
What is the transmission schedule of Exercised Options Trades (EOTs) from SEOCH to CCASS resulting from exercise and assignment of stock options?
The EOTs will be transmitted to CCASS on the date of exercise and assignment. SEOCH will not include these EOTs in calculation of margin on the date of exercise and assignment. Instead, CCASS will include those EOTs in the Provisional Clearing Statement and in the calculation of Marks, Margin and Concentration Collateral on the date when the EOTs are received from SEOCH. For those SEOCH Participants selected for SEOCH to collect and pay Marks, Margin and Concentration Collateral of EOT pending stock positions, SEOCH will effect a transfer on T+1 day for the amount demanded by HKSCC from the SEOCH Participant’s designated House CCMS Collateral Account to HKSCC’s CCMS Collateral Account.
What are the requirements for trade adjustments in respect of Block Trade?
For SEOCH Participant, trade adjustments in respect of a Block Trade shall be submitted by SEOCH Participants at any time 30 minutes prior to the System Input Cutoff Time on the same Business Day or 30 minutes prior to the System Input Cutoff Time on the next Business Day. For details, please refer to SEOCH Procedures section 5.4.5.
For HKCC Participant, for Block Trades executed during the T Session on a Business Day, trade adjustment request may be submitted at any time 30 minutes prior to the System Input Cutoff Time on the same Business Day or 30 minutes prior to the System Input Cutoff Time on the next Business Day. For Block Trades executed during the T+1 Session on a Business Day, trade adjustment requests may be submitted at any time 30 minutes prior to the T+1 Session Cutoff Time on the same Business Day or 30 minutes prior to the System Input Cutoff Time on the next Business Day. For details, please refer to HKCC Procedures section 1.4.1.
What is the use of DCASS Individual Client Account?
Upon the requests of Participants, Clearing Houses may in its absolute discretion establish and maintain one or more Individual Client Accounts for the Participants. The Individual Client Account is for the recording of trades and positions of each individual client of a Participant. Positions are maintained and margined on a NET basis in an Individual Client Account. Participants should ensure that all positions maintained in an Individual Client Account belong to one client only, and such trades and positions are not held by a client operating an Omnibus Account.
What is the use of DCASS Client Offset Claim Account ("COCA")? Each HKCC Participant will have one COCA. Upon the requests of HKCC Participants, Clearing House may in its absolute discretion establish and maintain more than one COCA for the HKCC Participants. COCA is for the recording of positions of individual clients of an HKCC Participant which are of an offset nature. The offset criteria can be found in chapter 2 of the HKCC Procedures. Positions in each portfolio for offset claim must belong to the same client. Positions in COCA are maintained on a GROSS basis, but margined on a NET basis. HKCC Participants should ensure that all positions maintained in COCA for margin offset can be reconciled with their internal records.
Upon the request of SEOCH Participants, HKEX may in its absolute discretion establish one COCA. Positions in COCA are maintained on a GROSS basis, but margined on a NET basis. SEOCH Participants should ensure that all positions maintained in COCA for margin offset can be reconciled with their internal records. Margin offset through COCA must be claimed in pairs of client positions and only the position pairs fulfilling ALL the following conditions are eligible:
The pair of positions is in the Omnibus Client Account;
The pair of positions belongs to the same beneficial owner; and
The positions forming the pair are one short put and one uncovered short call positions sharing the same underlying
What is the use of DCASS Daily Account?
The DCASS Daily Account serves as an intermediary account to which trades can be transferred on a temporary basis for average price trade calculation or other purposes.
Positions recorded in the DCASS Daily Account are maintained on a GROSS basis during the day. Any positions for T Session remained in the DCASS Daily Account after the System Input Cutoff Time of 6:45 p.m. will be automatically transferred to the Sink Account of the Participant.
How can Participants obtain trade detail information?
Participants can check real-time trade details via the "Trade History" window. A "Cross Trade" will have the deal source "EMP1br".
If Participants would like to see only the trades of Stock Options market, they can make use of the "Markets" window to filter the trades.
On the other hand, Participants can also refer to the DCASS reports "TP001 Position Details" and "TP003 Position Movement Details".
How should Participants do if they have net down positions wrongly? If Participants net down a position wrongly, they CANNOT reverse or re-open the positions themselves via the DCASS Terminals or DCASS OAPI applications. They have to complete stipulated request forms (HKCC: Form 6; SEOCH: Form A6) and submit to the Clearing Houses for on-behalf adjustment before System Input Cutoff Time of 6:45 p.m. within 5 business days after the closing of the position. How can Participants perform a trade give-up or take-up in DCASS?
Giving-up Participants can use the "Give Up" window to perform trade give-ups, and to check or reject (if any mistakes are made) their give-up requests via the "Holding Give Up" window. Participants can give up T day trades and T-1 day trades via the DCASS Terminals.
Taking-up Participants can use the "Holding Give Up" window to either take up or reject the trade give-up requests via the DCASS Terminals.
A trade is successfully transferred provided that the give-up party has submitted the give-up successfully and the take-up party has confirmed the take-up successfully. If there are any give-up requests in holding state (i.e. not confirmed the give-up trades) after the System Input Cutoff Time of 6:45 p.m., these requests will be automatically rejected and the relevant trades will remain with the give-up participants in the batch process.
How can Participants transfer trades out of the "Sink Account"?
Any trades remained in the Daily Account "DA" as at the day-end will be automatically transferred to the Sink Account during the DCASS day-end batch process. Participants are required to move out those trades from the Sink Account before the System Input Cutoff Time of the next business day. A Participant can use the "Rectify Trade" function to moves out these trades to other correct account(s) within itself or give-up them to other Participants.
When will the settlement fee and exercise/assignment fee be charged?
For HKCC, the settlement fee will be charged on any unclosed spot month futures contracts on its last trading day.
For HKCC, the exercise fee will be charged on any exercised options and the assignment. However, for SEOCH, only exercise fee will be charged on any exercised options.
How can Participants check all collateral balances and transaction records?
Participants can check the details of all collateral balances and transactions via the on-line functions "Enquire Collateral Account Balance" and "Enquire Collateral Account Movement" respectively. The CCMS day end report "Statement of Collateral Account" (CCMDS01) also contains relevant information. In addition to balances of both cash and non-cash collateral in general, "Contract Currency On-hold" is also shown to reflect the cash amount being held for covering margin liability and therefore is not available for withdrawal.
How money settlement is handled by CCMS and what are "Outstanding Debit Amount" and "Shortfall Amount"?
For any item receivable from Participants (e.g. cash deposit, margin, variation adjustment (VA) collection, etc), a Direct Debit Instruction (DDI) will be generated and sent to the relevant Settlement Bank or Designated Bank of the Participant for money settlement.
For any item payable to Participants (e.g. cash withdrawal, VA release, etc), a Direct Credit Instruction (DCI) will be generated and sent to the relevant Settlement Bank of the Clearing House to effect payment to the Participant's bank account.
"Outstanding Debit Amount" and "Margin Shortfall Amount" refer to negative cash amounts generated due to fees/VA and margin obligations respectively.
Can Participants transfer the cash collateral between their Collateral Accounts?
Participants can use the CCMS function "Maintain Cash Collateral A/C Transfer" to transfer cash collateral from their House or Market Maker Collateral Accounts to Client Collateral Accounts. However, transfer of cash collateral from the Client Collateral Account to other Collateral Accounts via the on-line CCMS "Collateral A/C Transfer" function is NOT allowed.
Why do different collateralisation batches appear twice for the same account in the "Posting / Collateralisation Result Report" (CCMPY02)?
In the event that an intra-day re-calculation of margin requirements and collateralisation are triggered during the day without actual call for payment by the Clearing House for its internal purposes (i.e. no "Posting/Collateralisation Result Report" (CCMPY01) is generated), the collateralisation results will be shown in the subsequent payment report (it may be the next IDM CCMPY01 report or day-end CCMPY02 report).
For this earlier collateralisation batch, an indicator "*" will be shown on the 132nd column in the report, meaning that the extra collateralisation information is not the most up-to-date collateralisation information.
For the last collateralisation batch, i.e. the latest collateralisation batch shown on the CCMPY01/ CCMPY02 report, this indicator will not be shown on the 132nd column. The same indicator will also be shown in CCMPY01 (Daily Intra-day Assessment) report when a participant account is not subject to HKCC Daily Intra-day Risk Assessment VA call during this collateralization.
How much interest will be received by Clearing Participants on the cash margin deposits and when will it be received?
Interests will be rebated to Clearing Participants on the cash margin deposits at the prevailing bank saving deposit rate. In determining the prevailing bank savings deposit rate for HK dollar cash margin deposit, reference will be made to the Capital Preservation Fund rate as from time to time published by the Mandatory Provident Fund Schemes Authority, which is equivalent to the simple average deposit saving rates for deposit amount HKD 120,000 of three notes-issuing banks in Hong Kong. Similar basis is applied to other eligible currencies. However, Participants will be charged with negative interest if the bank saving deposit rate is negative. The interest will be calculated daily and rebated on the first business day of the next month.
How do participants deposit or withdraw cash in approved currency other than settlement currency with the Clearing Houses?
Any Participant wishing to deposit or withdraw cash collateral in approved currency other than settlement currency shall notify the Clearing House in writing or by other means acceptable to Clearing House by 11:00 a.m. on any bank business day. Only after the receipt of the relevant currencies has been confirmed by its settlement banks would Clearing House accept the relevant currencies as cover for the margin requirements.
Normally, the value date for the release of surplus in cash collateral in approved currency other than settlement currency will be the next bank business day after the date on which the withdrawal request is accepted, except Japanese Yen where the value date will be the second next bank business day.
The exchange rates for valuation of cash collateral in approved currency other than settlement currency will normally be determined with reference to the rates published on Reuters pages as at 4:00 p.m. of a business day. Participants will be required to reimburse any incidental costs and charges in respect of the delivery of collateral.
What are the accommodation charges on non-cash collateral deposit?
The current accommodation charges levied by HKCC and SEOCH are 0.5% per annum on utilized non-cash collateral.
For example, a SEOCH participant utilized a non-cash collateral of amount HKD10,000,000 for one day, the accommodation charge will be HKD10,000,000*0.5%*1/365 = HKD136.99.
When can SEOCH Participants transfer the de-covered stock back to CCASS?
De-covered stocks will be held as "To-be-released" balance after de-cover requests are successfully executed. After the confirmation of money settlement in the morning of the next business day, the de-covered stocks will be released from the "To-be-released" balance to the general collateral balance. SEOCH Participants can then transfer those stocks from their CCMS Collateral Accounts back to CCASS under the Collateral Accounts of their respective HKSCC Participants.
How is Reserve Fund contribution collected from / released to Clearing Participants?
Participants will be notified about Reserve Fund contribution / release by checking Clearing Houses' circulars. The details regarding the individual contribution requirement can be found from the report RP008 - HKCC Participant Additional Deposits (for HKCC Participants) or SEOCH Reserve Fund Contribution Notice (for SEOCH Participants) distributed through the DCASS Terminal.
HKCC/SEOCH Participant's additional contribution to the Reserve Fund is debited from the Participant's House bank account via the direct debit instruction by 4:00 pm on the 1st business day after the distribution of the clearing report (RP008). Any surplus of HKCC/SEOCH Participant's Reserve Fund contribution will be credited to its registered bank account via the direct credit instruction on the same date.
Where can Participants locate their DCASS reports?
When DCASS reports (including trades and positions for T Session today, and T+1 Session of previous business day) are available, they will be automatically downloaded to the Participants’ DCASS Servers provided that their DCASS Servers are connected to DCASS Host. All DCASS reports will be stored under the directory “C:\Users\Public\NASDAQ OMX\CW1\40662\Reports\1” of the DCASS Server.
All DCASS reports, except Risk Parameter File, are in text format and Participants can view and print these reports directly via the DCASS Terminals.
Can Participants still be able to retrieve DCASS reports if their DCASS Servers are powered off overnight?
Participants should power on their DCASS Servers in the next business day morning. Once their DCASS Servers are switched on, the overnight reports will be downloaded to their DCASS Servers automatically. Except for the Risk Parameter File (RPF), Participants can manually retrieve the reports before 6:45 p.m. in case that their DCASS Servers are powered off overnight. After 6:45 p.m., the reports will be removed from the DCASS host and not be available for download. For the RPF, Participants can retrieve them via DCASS Terminals before 8:30 a.m. on the next business day or download it from HKEX website.
If Participants cannot restart their DCASS Servers or retrieve all their DCASS reports, they can submit request forms to the Clearing Houses for copies of the required reports in printed and/or soft forms. Clearing Houses will charge a fee for handling of those requests as stipulated in the Clearing House Procedures (currently at $5 per page up to $1,000 per report or per diskette).
Where can Participants locate their CCMS reports?
Participants can check the availability of, print, view or download their CCMS reports from the "Report Download" function via CCMS Terminals. Alternatively, Participants can print or download the CCMS reports, under an unattended mode, by logging onto the “Overnight Report Distribution” function via CCMS Terminals after they completed their CCMS operations for the day.
How do Participants update Clearing Houses for change of authorised signatories and contact details?
All request forms submitted by Participants to the Clearing Houses have to be properly authorized with signatures of appropriate personnel. Request forms which do not bear authorised signatures will not be processed by the Clearing Houses.
Participants should notify the Clearing Houses of any updates of their authorised signatories by submitting a “Change of Authorised Signatories Form” and prescribed supporting documents.
Moreover, Participants are required to provide the contact details (including mobile phone number and email) of their staff who are responsible for DCASS operations, CCMS / Intraday Margin Call and IT matters. Participants are requested to notify Clearing Houses for any change of contact details by submitting a “Change of Company Particulars and Contact Persons Form”.
Participants are required to ensure their contact details are up-to-date so that Participants can be reached by Clearing Houses in case of emergencies.
Participants can contact the DCASS Hotline at 2979-7222 for details.
What is the security measure for Participants to access DCASS?
Each DCASS Server has a unique pair of logon User ID and Password to access DCASS Host. The User ID is assigned by Clearing Houses and cannot be changed by Participants. If Participants have applied for DCASS Administration Account (“Admin Account”), they can reset the Password of DCASS Servers.
For access via DCASS Terminals, 2 Terminal User IDs with full access to all available functions will be set up for each Participant. Participants can manage their own user access profiles and reset passwords for their DCASS Terminal Users via the Admin Account. A total of 10 preset access profiles are available and details of each access profile can be found in chapter 8 of the DCASS Terminal User Guide.
What is the security measure for Participants to access CCMS?
Participants should access CCMS via SmartCards. Participants carrying different participantship at Clearing Houses should apply for separate sets of SmartCards from the respective Clearing Houses.
Furthermore, Participants should appoint their own Delegated Administrators (DAs) to manage the basic security profile of their own CCMS users. DAs can access CCMS's security management functions using their DA smartcards at https://www.ccass.com/dms. Please refer to the CCMS Terminal User Guide
How can Participants acquire the PC SPAN software?
Participants can acquire the PC SPAN software directly from the Chicago Mercantile Exchange Inc.
Participants may use other software or develop their own software to calculate their client margin requirements provided that the margin calculated should not be lower than that calculated by using the PC SPAN. Participants are reminded that the minimum margin rates determined by HKEX are for the Participants' financially strongest clients. Participants should set their margin requirements according to each client's individual circumstances.
How many Risk Parameter Files (RPFs) will be generated and distributed via the DCASS Terminals/ HKEX website daily?
At least 4 sets of RPFs will be generated and distributed via the DCASS Terminals/ HKEX website daily. Each file covers all markets cleared by both HKCC and SEOCH.
1 set of RPFs will be generated around 2 hours after the close of trading for the day. Their file names will have the 3rd character equal to 'P'.
1 set of RPFs will be generated around mid-night of the trading day. Their file names will have the 3rd character equal to 'F'.
2 sets of intra-day RPFs will be available in the HKEX website at around 09:00 and 13:00. Their file names will have the 3rd character equal to 'I'. In case there is Intra-day Margin call, 1 set of intra-day RPFs will be generated for each IDM call and available in the HKEX website immediately after the IDM Clearing Message is issued.
Each set of RPFs mentioned above will have 1 file. The file is used for calculation of Clearing House margin which has the 2nd character of the file name equal to 'P'.
Participants can refer to the DCASS Terminal User Guide for more details of the RPFs.
How do Participants perform client offset claim?
For both HKCC Participants and SEOCH Participants, they can simply transfer the claimed client positions from the Omnibus Client Account to Client Offset Claim Account "COCA" for the client offset purpose. DCASS will calculate the margin of the claimed positions in COCA on a net basis.
For SEOCH, margin offset through COCA must be claimed in pairs of client positions and only the position pairs fulfilling ALL the following conditions are eligible:
- The pair of positions is in the COCA;
- The pair of positions belongs to the same beneficial owner; and
- The positions forming the pair are one short put and one uncovered short call positions sharing the same underlying
For both HKCC Participants and SEOCH Participants, Individual Client Account is also available for the offset purpose. A Participant can simply transfer positions of an individual client from the Omnibus Client Account to a designated Individual Client Account in which the positions will be kept and margined on a net basis.
How do Clearing Houses notify Participants in case of intra-day margin call?
Clearing Houses will send clearing message to alert Participants in case of intra-day margin call. A pop-up window will be displayed on the DCASS Terminals to alert Participants there is new clearing message received. Participants should check clearing messages regularly via the "Clearing Messages Window".
To facilitate Participants to get used to the notification arrangement, Clearing Houses would still make phone alerts in addition to the Clearing Message alert for intra-day margin call.
What is the treatment of Intra-Day and End-of-Day Variation Adjustment in relation to Internal and External Position Transfer?
The transfer price for a position transfer is the closing quotation on the date of transfer day. After an internal and external transfer of position from the transferring Participant Account to the receiving Participant Account:
On the day of the position transfer, the subsequent intra-day and end-of-day Variation Adjustment calculation of the transferring Participant Account will include those of the transferred positions until the commencement of the next business day.
On the day of the position transfer, the subsequent intra-day and end-of-day Variation Adjustment calculation of the receiving Participant Account will exclude those of the transferred positions until the commencement of the next business day.
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 purposes for introducing AHFT?
The introduction of AHFT 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. AHFT 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 would be the trading arrangement for Block Trade Facility (BTF) in AHFT?
The trading arrangement of BTF in AHFT is the same as that in the T Session, except that:
- block trade prices 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.
Would there be any possibility of excessive price movement in AHFT as the activities during AHFT is expected to be lesser than the day time?
We foresee that the liquidity and activities during AHFT might be lower than that in the day time. However, as the AHFT proposal received strong support from Futures EPs which accounted for 80% of market share in HSI and HHI futures in H1, 2011, HKEx believes that many Futures EPs and investors will participate in AHFT and they will monitor the market prices during AHFT for trading or hedging opportunities. This trading participation should help in guarding against market manipulation. In the event that there are any abnormal price deviations, these market participants will consider these as profit opportunities and trade to counter the price deviation.
During the review period (8 April 2013 to 7 October 2013), trading was orderly in T+1 Session and no excessive price movements were observed, the maximum movement of AHFT prices compared to the close of T Session close did not exceed 2.3%.
Why would there be a price limit up/down mechanism for AHFT? 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 it compulsory for EPs to participate the AHFT?
It is not compulsory for EPs to participate the AHFT as different EPs may have different considerations such as their clients’ trading interest and operational / resources requirements. Whether to participate in AHFT 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, AHFT 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 AHFT.
What is the impact to those EPs that decide not to participate?
Those EPs should assess the business opportunities in AHFT and their services to be provided to their clients during the AHFT. If they decide not to participate in AHFT, they need to ensure that their clients are aware that they would not accept clients’ orders during and for the T+1 Session. They may 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 would be the clearing arrangement for AHFT?
- Clearing of Trades Executed in T+1 Session
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, these trades will undergo the standard clearing process during the standard clearing session. With after-hours futures trading, the DCASS services will start at 7:30 a.m. for respective futures products.
The existing System Input Cutoff Time will remain unchanged at 6:45 p.m.
A new T+1 Clearing Session Cutoff Time will be introduced for Clearing Participants to perform post-trades adjustments for trades and position created during T+1 Session that ends 45 minutes after the close of the T+1 Session (i.e. 11:45 p.m.).
A comparison of time windows for existing and proposed clearing sessions is as follows:
||T CLearing Session
||T+1 Clearing Session
7:30 a.m. - 6:45 p.m.
5:15 p.m. - 12:30 p.m.
|London Metal Mimi Futures
||5:15 p.m. - 01:45 a.m.
- Position Recording
Positions will be 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 Cutoff Time i.e. 6:45 p.m. and subject to day-end margin calculation. T+1 day positions will be finalized at T+1 Clearing Session Cutoff Time i.e. 11:45 p.m. 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.
What would be the risk management arrangement for AHFT?
: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 AHFT.
- 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 may be requested to reduce their exposure to re-establish compliance with their CBPL and risk being disconnected from the HKEx trading system and closing out action should they fail to comply with such request or further increase their exposure.
- A mandatory variation adjustment and margin call to markets (based on the morning Calculated Opening Prices1) with T+1 Session will be introduced following the market open of each T Session to collect by12:00 noon both mark-to-market loss and margin of
all positions including that created by trades in T+1 Session. 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 additional Risk Parameter Files (RPFs) upon the launch of AHFT for CPs reference?
Upon the launch of AHFT, 2 extra sets of RPFs will be disseminated to CPs for their reference. Please note that these extra 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.
|RPF Dissemination Time
|Around 4:45 p.m.
||Based in the mareket prices near the close of T Session
|Around 12:15 a.m. on the next
|Based on the market prices at the close of T+1
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 AHFT so no auction order is allowed.
Would you provide a time table for trading status for HSI/HHI, MHI/MCH, RMB & London Metal Mini futures during AHFT?
The trading status and their corresponding time during AHFT will follow the time table below:
For HIS/HHI, MHI/MCH, RMB futures 07:30:00 CL_START
…. (same as existing)
For London Metal Mini futures
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 a CAS?
Closing auction, which allows execution at the closing price, is a trading mechanism commonly used in securities markets across the globe. During a closing auction, market participants interested in trading at the closing price may input buy and sell orders. Then their orders interact with each other to form a consensus closing price for each security and orders are executed at that price.
The CAS commences immediately after the completion of the Continuous Trading Session (CTS).
How does the CAS work?
The CAS would last for about 8 to 10 minutes and consists of a reference price fixing period, an order input period, a no-cancellation period and a random closing period as follows:
Full Day Trading
Half Day Trading*
Reference Price Fixing Period
16:00 – 16:01
12:00 – 12:01
Order Input Period
16:01 – 16:06
12:01 – 12:06
16:06 – 16:08
12:06 – 12:08
Random Closing Period
16:08 – 16:10
12:08 – 12:10
* Eves of Christmas, New Year and Lunar New Year
- In the first period (Reference Price Fixing Period, 4:00-4:01 pm), a reference price, which sets the allowable price limit of the CAS (±5 per cent from the reference price), is calculated for each CAS security. The reference price is determined by taking the median of 5 nominal prices in the last minute of the Continuous Trading Session (CTS) and the system would take 5 snapshots on the nominal prices at 15-second interval starting from 15:59:00.
- In the second period (Order Input Period, 4:01-4:06 pm), at-auction orders and at-auction limit orders within the ±5 per cent price limit could be entered, amended or cancelled on CAS securities.
- Starting from the third period (No-Cancellation Period, 4:06-4:08 pm), at-auction orders and at-auction limit orders could be entered. However, the prices of new at-auction limit orders must be between the lowest ask and highest bid of the order book, and no orders could be amended or cancelled.
- In the last period (Random Closing Period, 4:08-4:10 pm), the order rules from the No-Cancellation period apply and the market closes randomly within two minutes.
- After the random closing period, there is order matching for all CAS securities at the final IEP. In cases where no final IEP is established during the CAS, the reference price would be treated as the final IEP for order matching and would become the closing price of the CAS security. This price would also be used for order matching based on matching priority, i.e. by order type, price and then time.
What securities are covered under the CAS? Would it be extended to cover all securities in the future?
dThe CAS would be rolled out in two phases, with the list of securities potentially expanded in Phase 2.
Phase 1 includes all the Hang Seng Composite LargeCap and MidCap index constituent stocks, the H shares which have corresponding A shares listed on the exchanges in Mainland China and all ETFs. Before Phase 1 implementation, the finalised list of Phase 1 CAS securities would be published on the HKEX website at the VCM and CAS web corner.
In order to maximize the stability and continuity of CAS operations, during Phase 1 CAS any addition of constituent stocks to the Hang Seng Composite LargeCap and MidCap indexes would be added to the list of CAS securities; while deletion from these indexes would not be removed from the list of CAS securities.
Subject to a review of Phase 1 and approval by the SFC, Phase 2 will be rolled out at least 6 months after the Phase 1 and will potentially include all equity securities and funds not covered in the Phase 1.
What would be the changes to trading hours in the securities and derivatives market as a result of the conclusion?
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With the introduction of the CAS, the securities market closing time would be extended to a random closing between 16:08 and 16:10 from today’s 16:00.
The trading hours of the securities market under the CAS model would be as set out in the table below for full and half day trading respectively:
|Securities market trading hours under new CAS model (Full Day)
| Trading sessions
||Current trading hours
||Trading hours with a CAS
| Pre-opening Session
Extended Morning Session
CAS (applicable to all CAS Securities)
Reference Price Fixing Period
Securities market trading hours under new CAS model (Half Day)
| Trading sessions
||Current trading hours
||Trading hours with a CAS
| Pre-opening Session
CAS (applicable to all CAS Securities)
Reference Price Fixing Period
The closing times of normal trading sessions for Stock Index Futures and Options, Currency Futures and Commodity Futures will change from 16:15 to 16:30 for a normal trading day and from 12:00 to 12:30 for a half trading day, except on the last trading day of the contracts. The opening time of After-Hours Futures Trading will change from 17:00 to 17:15.
In addition, trading hours on the last trading day, the final settlement price calculation algorithm and typhoon arrangements will also change accordingly. Please refer to the SEHK Circular (Ref: MO/DT/056/16) issued on 17 May 2016 for details.
What is the typhoon arrangement in the securities market after the introduction of the CAS?
If a Typhoon Signal No. 8 or above is hoisted before 15:45 (for full day trading) or 11:45 (for half day trading), trading will terminate 15 minutes after the hoisting of the Signal. There will be no CAS for that trading day if trading has not been resumed by 15:45 (for full day trading) or 11:45 (for half day trading).
If a Typhoon Signal No. 8 or above is hoisted at or after 15:45 (for full day trading) or 11:45 (for half day trading), trading for the day will continue as normal until the end of the CAS.
How does the price limit in the CAS work?
A two-stage price limit is applied to control the price of limit orders which are either carried forward from the CTS to the CAS, or newly input during the CAS.
Scope of price limit
Order Input Period
± 5% from reference price
Random Closing Period
Within the lowest ask & highest bid at the end of Order Input Period as recorded at 16:06
Carry forward of outstanding orders into the CAS
- Outstanding orders within the permissible price limit (i.e. buy order <= upper limit and sell order >= lower limit), including short selling or market making orders, will be automatically carried forward from the CTS to the CAS. OTP-C would treat such orders as at-auction limit orders.
- In Stage 1, aggressive orders with price outside the permissible price limit (i.e. buy order > upper limit and sell order < lower limit) will be cancelled by OTP-C with an order cancellation message returned to the relevant EP. Passive orders with price outside the permissible price limit (i.e. buy order < lower limit and sell order > upper limit) will remain on the order book but will not be executed at the end of the CAS.In Stage 2, any at-auction limit orders with limit price outside the price limits when the second stage price limit takes effect will not be cancelled by the system but would not be executable during the CAS.
New order input during CAS
- At-auction orders and at-auction limit orders within the ± 5% of the reference price can be entered starting from the Order Input Period. An at-auction limit order that is input during the CAS and which has a limit price is outside the permissible price limit will be rejected by OTP-C.
- Starting from the No-Cancellation Period, the price limit may be further tightened and is set at the highest bid and the lowest ask of the order book at the end of the Order Input Period as recorded at 16:06. This price limit will remain unchanged for the whole period of No-Cancellation and Random Closing Periods.
What would happen if an order for CAS has been entered outside CAS the permissible price limit?
An at-auction limit order that is input during the CAS and which has a limit price is outside the permissible price limit will be rejected by OTP-C. For example, if the reference price is $100, OTP-C will reject buy and sell orders with prices lower than $95 or higher than $105. During the No-Cancellation Period and Random Closing Period, OTP-C will reject new buy and sell orders with prices outside the highest bid and lowest ask recorded at the end of Order Input Period (i.e. 16:06).
Some market participants asked for a 2 per cent price limit for the CAS. What was the rationale for the 5 per cent limit HKEX proposed and did HKEX consider changing it after reviewing the comments it received?
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.
Will trade matching occur if there is no Indicative Equilibrium Price (IEP)?
In cases where no final IEP is established during the CAS, the reference price would be treated as the final IEP for order matching and would become the closing price of the CAS security. This price would also be used for order matching based on matching priority, i.e. by order type, price and then time.
Is short selling allowed in the CAS? What would happen on outstanding short sell orders input during the CTS?
To allow the market to be familiar with the new CAS, short selling will not be implemented in the Phase 1 of the CAS. Hence, input of new short selling order during the CAS will not be allowed during the Phase 1 of the CAS.
However, it should be noted that outstanding short selling orders, which are input during the CTS and with order prices higher than or equal to the lower price limit (i.e. order price >=95% of reference price), will be automatically carried forward to the CAS. All these orders will be treated as at-auction limit orders.
For the short selling orders carried forward to the CAS, EPs are allowed to cancel and reduce the quantity of the orders during the CAS and in such cases the original order priority will be maintained. However, change of order price or increase of quantity of these orders during the CAS will not be allowed.
Why is Reference Price (43) received twice at 16:00 and 16:06 for certain securities?
Reference price for all CAS and Non-CAS eligible securities is calculated and published in Reference Price (43) message, shortly after the start of Reference Price Fixing Period (RP). For CAS securities, the upper and lower price limit disseminated in the Reference Price (43) at 16:00 may be adjusted after the end of Order Input session at 16:06. Reference Price (43) message for each CAS eligible security would be sent again at the end of Order Input session to provide the lower and upper price limits, regardless of whether there is any change.
When would the Indicative Equilibrium Price (IEP) message be generated?
IEP messages would be generated when IEP is changed during the POS or CAS. For the CAS, you would receive IEP(41) messages at Order Input (OI) (i.e.TradingSessionSubID =5), No Cancellation (NW) (i.e. TradingSessionSubID = 106), Random Close (RC) (i.e TradingSessionID = 107) & Matching (MA (i.e. TradingSessionSubID =4)
How does CAS in the securities market affect the final settlement price of derivatives products?
Hang Seng Index Futures, H-shares Index Futures, Mini-Hang Seng Index Futures, Mini H-shares Index Futures, Section Index Futures and Stock Futures
The final settlement price (FSP) calculation algorithm remains unchanged, except the last reading in the FSP calculation algorithm will be taken when the closing indices and closing underlying stock prices are disseminated at the end of the CAS in the SEHK. The mechanism to take the other readings remains unchanged as compared to before CAS implementation.
As Stock Options are physically settled, no FSP will be calculated. Open options contracts which are 1.5% or more in-the-money will be auto-exercised upon expiration, given there are no prior overriding instructions from the broker. Please note the auto-exercise of Stock Options makes references to the closing price of the underlying stock, which would be determined in the CAS for names that are eligible.
Volatility Index Futures
The FSP determination period on full day trading remains unchanged, whereas on half day trading the FSP determination period is changed from 11:15 – 11:45 to 11:30 – 12:00.
Note: There will be no CAS in the securities market for that trading day if trading terminates because of severe weather conditions and is not resumed by 15:45 (for full day trading) or 11:45 (for half day trading).
How are the trading hours for derivatives market on last trading day affected by CAS?
The following arrangement is applicable to spot month contracts on last trading day after the CAS implementation.
The trading hours remain unchanged for the following products:
- Hang Seng Index Futures & Options (Including Flexible Index Options)
- H-shares Index Futures & Options (Including Flexible Index Options)
- Mini-Hang Seng Index Futures & Options
- Mini H-shares Index Futures
- HSI Volatility Index (VHSI) Futures
- Sector Index Futures
- CES China 120 Index Futures
- Stock Futures & Options
- Currencies Futures
- HIBOR Futures
For the following products, the closing time will be changed from 16:15 to 16:30 for full day trading and from 12:00 to 12:30 for half day trading.
- HSI Dividend Point Index Futures
- H-shares Dividend Point Index Futures
- IBOVESPA Futures
- MICEX Index Futures
- S&P BSE Sensex Index Futures
- FTSE/JSE Top40 Futures
For London Metal Mini Futures, the last trading time on last trading day remains unchanged, except if the last trading day is a half trading day, the closing time will be changed from 12:00 to 12:30.
Would there be any impact on Stock Connect?
The CAS would be applicable to Stock Connect Southbound brokers and investors, and would include current Stock Connect stocks for Southbound trading (i.e. stocks allowed for both buying and selling) in Phase 1.
What were the key CAS concerns raised by the market during the consultation process and have they been addressed?
The consultation found respondents’ key concerns are (1) possible market manipulation; and (2) the perception that retail investors would be disadvantaged in the CAS. They are addressed below:
- Hong Kong has been able to learn from the CAS experience of other markets. HKEX’s final CAS model has a number of enhancement features used in other markets to address potential market manipulation. For instance, the model imposes a 5 per cent price limit on at-auction limit orders, allows at-auction limit orders throughout the CAS, provides better market transparency and has a random closing. Implementation would be in phases to allow the market to get familiar with the CAS before further securities are included in scope. The results and effectiveness of the CAS would be reviewed before rollout of the second phase. Besides, HKEX and the Securities and Futures Commission (SFC) would further enhance the joint electronic market surveillance platform to improve the cross market surveillance function. Also, additional spending is budgeted by HKEX for new real time alerts to help monitor suspicious market activity. HKEX would assist the SFC in conducting thorough reviews and taking enforcement actions as necessary should any trading irregularities be detected.
- Participation in the CAS is optional. Investors can choose to participate only in the CTS if they wish. When HKEX had a closing auction before, the liquidity shifted from the CTS to the closing auction was not significant, therefore CAS’s impact on investors who do not participate in it should not be significant. For investors who would like to participate in the CAS, HKEX has built in enhancements such as allowing at-auction limit orders throughout the CAS to provide price protection as well as price improvement opportunities for all investors. This should encourage participation from both retail and institutional players and create a level playing field. HKEX would also work with the Investor Education Centre of the SFC and other relevant parties to provide market and investor education to ensure that the CAS and its features would be well understood by all market participants.
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.