Hong Kong Exchanges and Clearing Limited (HKEx) announced today (Tuesday) that it will introduce a pre-opening session and an index basket order trading mechanism in the securities market on Monday, 25 March 2002, following the successful completion of market rehearsals. The 30-minute pre-opening session will start at 9:30 am. The index basket order trading mechanism will only be applicable in the continuous trading session.

With the introduction of the pre-opening session, the Stock Exchange has amended the Listing Rules to require that listed company announcements will have to be published or received by the Stock Exchange at least 30 minutes before the start of the pre-opening session. This is to ensure that the market is informed before the commencement of the pre-opening session.

In addition, except where there are unforeseen circumstances, any request for suspension of trading in securities should be made by listed issuers no later than the commencement of the pre-opening session, and listed issuers should allow sufficient time for the Stock Exchange to implement the request by 9:30 am.

While not encouraged, it will still be possible to implement trading suspensions from 9:30 am up to 9:50 am when the order-matching period commences. However, it will not be possible to implement them once the order-matching period has started. Any request for trading suspension which cannot be implemented before 9:50 am will only be implemented at or after 10:00 am when the continuous trading session begins.

Amendments to the Stock Exchange's Listing Rules related to the pre-opening session, and amendments to Rules of the Exchange related to the pre-opening session and the index basket order trading mechanism will come into effect on 25 March 2002. They will also be available for viewing on the HKEx website at http://www.hkex.com.hk from that date.

Attached is additional information on the pre-opening session and the index basket order trading mechanism.

Pre-opening session and index basket order trading mechanism

Pre-opening session

The pre-opening session will determine a fair opening price and reduce the loading of the system arising from the large number of order inputs and trade execution messages at the commencement of the morning session.

It will consist of an order input period from 9:30am to 9:45am; a pre-order matching period from 9:45am to 9:50am; an order matching period from 9:50am to 9:58am; and a blocking period from 9:58am to 10:00am.

During the order input period, only at-auction orders and at-auction limit orders will be accepted. Orders will be accumulated and updated in the trading system continuously and may be modified or cancelled. Only at-auction orders will be accepted during the pre-order matching period, and modification or cancellation of orders in the system may not take place during this period.

An at-auction order is a market order that can be input during the order input and pre-order matching periods for the purpose of obtaining a single price auction in the pre-opening session. It has no specified price and enjoys a higher auction matching priority than the at-auction limit order. An at-auction limit order has a specified price for single price auction in the pre-opening session.

An Indicative Equilibrium Price (IEP) and Indicative Equilibrium Volume (IEV) are continuously re-calculated each time a new order is input during the order input and pre-order matching periods. The IEP is the price at which the maximum number of shares can be traded if matching occurs at that time. IEV is the number of shares that would be traded at the IEP.

No orders may be input, modified or cancelled during the order matching period. The final IEP of each security is determined during this period. Orders are matched in order type, price and time priority at the final IEP, with at-auction orders carrying a higher priority.

After introduction of the pre-opening session, stock exchange participants will be allowed to input pre-open trades into the trading system during the order input and pre-order matching periods, in addition to the existing first 15 minutes of the morning session that are allowed under the current rules. Pre-open trades are trades concluded before the commencement of the morning session, including those concluded on the previous day but not recorded in the system.

Index basket order trading mechanism

The index basket order trading mechanism will provide for index basket trading, including index arbitrage. It will introduce an additional order data design so that an order may contain a basket of orders based on the constituent stocks of an index with a derivative product traded on the exchange. AMS/3, the Third Generation Automatic Order Matching and Execution System, will recognise this basket order as a single order.

Initially, only basket orders based on the Hang Seng Index (HSI) will be allowed. Baskets on other tradable indices will be considered when there is market demand.

HSI basket orders must meet the following criteria:

HSI basket orders may only be entered during continuous trading and input will initially only be available on Broker Supplied Systems. The AMS/3 host will split basket orders into orders for the individual stocks and process them as Special Limit Orders, following their trading rules and matching priority.