The Hong Kong Futures Exchange (HKFE) announced today procedures to ensure the simulated trading test of its HKATS electronic trading system scheduled for Saturday, 24 July replicates real trading and provides complete test results upon which the migration date for Hang Seng Index (HSI) Futures can be confirmed.

It is the latest in a series of tests the Exchange has been conducting as part of its preparations for the migration of HSI Futures and Options from open outcry trading to HKATS.

Saturday's test is designed to simulate trade executions and related market activity at several levels, and it will comprise four 30-minute sessions:

• Session 1: 200% of normal trading day activity (130% of the historical high);
• Session 2: 300% of normal trading day activity (190% of the historical high);
• Session 3: 400% of normal trading day activity (250% of the historical high);
• Session 4: 500% of normal trading day activity (300% of the historical high).

To prevent the difficulties that could arise if participants did not follow the test guidelines, the Exchange has given each Member a number of trade executions and orderbook changes to complete during each of the four sessions on Saturday, based on the Member's market share and average trade execution level.

Due to the importance of this Saturday's test:

• The Exchange has requested that all Members participate.
• At least one Member director must be present in each Member's dealing room during the simulated trading sessions to supervise employees and ensure all instructions are followed properly.
• Exchange staff will be assigned to assist certain Members in their offices in connection with their simulated trading activity.
• The Exchange's Market Surveillance Department will electronically monitor the simulated trading activity of all Members.

After this Saturday's test, each Member is required to complete an evaluation form - in detail - and deliver it to the designated location by 5 p.m. so that the Exchange can complete a timely evaluation of the test. To ensure accuracy, the evaluation form must be signed by the Member director who supervised trading room activity during the test.

In addition, the Exchange is requesting that all Members participate in a briefing tomorrow (Friday) afternoon for the Member directors who will be acting as supervisors on Saturday.

"The vast majority of our Members followed the guidelines for the last test; a few did not," Chief Executive Randy Gilmore said. "We have revised the procedures for the next test to protect the collective interests of the HKFE and its Members. Conversion to full electronic trading is too important for the Exchange and for Hong Kong to allow a few to disrupt the process."

The transaction guidelines for the 17 July simulated trading test said:

Members are required to conduct orderbook/trade transactions in the functionality test not to exceed more than 100% of the respective Member's normal trading activity on a pro-rata basis and in the operational capacity test for Members to conduct orderbook/trade transactions in a realistic manner.

However, analysis of the test data revealed:

• One Member with a market share of 3.12% was responsible for 21.5% of the trading activity. The Member also simulated a trade execution rate that was 10,000% higher than its execution rate on a normal trading day.
• Six Members with a combined market share of 10.2% were responsible for 58% of the trading activity.
• Fifteen Members with a combined market share of 25.6% were responsible for 76% of the trading activity.
• One Member with an average per day trade execution rate of 6.5 trades (13 sides) entered 1,458 sides into the system.

"The (HKFE) Board continues to hold the view that the conversion of the Exchange into a fully electronic market place is the key to our future growth and development, and we remain committed to the successful migration of Hang Seng Index Futures to HKATS on August 2nd." Mr. Gilmore said. "Consequently, we are requesting the full co-operation of every Member in the July 24th simulated trading test to ensure the test is conducted in a professional manner and the results are meaningful."

Members and the Securities and Futures Exchange (SFC) will be fully advised of all the details of Saturday's test as soon as the full report is available.

The Hong Kong Futures Exchange is a leading futures and options marketplace in the Asia Pacific Region, with a membership of over 130 companies, including a number of major international institutions. The Exchange is actively diversifying its product base, which now includes currency, interest rate and equity-based products.

For further enquiries, please contact HKFE Corporate Communications: Mr. Mark Tung on 2842 9448 or Mr. Scott Sapp 2842 9421.