Hong Kong Exchanges and Clearing Limited (HKEx) will implement on 6 February 2003 (Thursday) an interim solution to the software problem that caused a temporary interruption in the operations of HKATS, the Hong Kong Futures Automated Trading System, on 29 January 2003. HKATS is the trading system for HKEx's futures and options contracts.
After a detailed analysis of events that led to the temporary interruption in HKATS operations, HKEx and OM Gruppen AB (OM), the HKATS system supplier and maintenance vendor, have identified the cause of the problem as a bug in OM's software in the handling of certain complex combinations of combo orders. It was determined that the bait orders generated under a combination of Predefined Futures Calendar Spreads involving three or more months in exceptional circumstances could lead to an infinite loop in the transaction processes. When infinite looping occurs, HKATS is not available for trading.
OM is working closely on a software solution and HKEx will install it as soon as the required testing and verification process has been completed.
As an interim solution, HKEx will restrict trading of certain Predefined Futures Calendar Spreads in order to minimise the possibility of similar malfunctions. Under the interim solution, the Predefined Futures Calendar Spreads will be amended as follows:
- Predefined Futures Calendar Spreads will only be spreads that are anchored off the front-month (spot-month) futures.
- On the last trading day, Predefined Futures Calendar Spreads will only be spreads that are anchored off the next-month futures.
- When a new futures month starts trading, Predefined Futures Calendar Spreads will include the new calendar spread comprising the anchored futures month and the new futures month.
The interim solution will be applied to Hang Seng Index (HSI) Futures, Mini-HSI Futures, Dow Jones Industrial Average Futures, MSCI China Free Index Futures, 3-year Exchange Fund Notes Futures and Hong Kong Interbank Offered Rate futures.
HKEx has tested the interim solution on HKATS over the past few days to confirm that it would circumvent the Combo Orders problem that has been identified. The vast majority of HKFE Participants including the more active participants were consulted and they agreed to the proposed interim solution. The Securities and Futures Commission was fully informed of HKEx's actions and had endorsed the interim solution.
The temporary restrictions on certain futures month combo orders will be lifted as soon as the permanent software solution has been implemented.
Given the relatively small volume of trading in back-month calendar spreads, HKEx believes the impact of the temporary restrictions on the market and Exchange Participants will be minimal. HKFE Participants can continue to trade the back-month outright markets as usual.