Consultation seeks views on proposals of reducing the minimum spreads

Regulatory

Market Operations

06 Aug 2004

Hong Kong Exchanges and Clearing Limited (HKEx) published today (Friday) its Consultation Paper on the Reduction of Minimum Spreads to invite market views and comments.

In developing the proposals, HKEx considered the characteristics of the Hong Kong securities market and the current market arrangements. The suggestion of reducing the minimum spreads is aimed at increasing the competitiveness of our market, improving market efficiency and enhancing market liquidity. The proposals would also make the spreads more uniform.

HKEx believes that changes in minimum spreads should be implemented cautiously. Therefore, a phased approach for reducing minimum spreads is proposed and the proposals for which comments are being elicited are summarised below. Alternative proposals are also welcome.

Phase 1 - To reduce minimum spreads for shares priced above $30.
Phase 2 - Subject to the results of Phase 1 implementation and market comments, Phase 2 would be implemented in four to six months after Phase 1. Two options were proposed for Phase 2 :

Option A - To reduce spreads for shares priced between $2 and $20; or

Option B - To reduce spreads for shares priced between $0.25 and $20 on the same basis as Option A.

Spreads for shares priced between $20 and $30 remain unchanged in both options.

The exact proposals for both Phase 1 and 2 are presented in the table below.

Proposed minimum spreads - Phase 1 and Phase 2

Prices from (HK$)	Current Minimum Spread	Phase 1	Phase 2
Prices from (HK$)	Current Minimum Spread	Proposed Minimum Spread (>$30)	(Option A ) Proposed Minimum Spread (>$2)	(Option B ) Proposed Minimum Spread (>$0.25)
0.01	0.001	No Change	No Change	No change
0.25	0.005	No Change	No Change	0.001
0.50	0.010	No Change	No Change	0.001
1.00	0.010	No Change	No Change	0.002
2.00	0.025	No Change	0.005	0.005
5.00	0.050	No Change	0.010	0.010
10.00		No Change	0.020	0.020
20.00		No Change	No Change After Phase 1	No Change After Phase 1
30.00	0.100	0.050	No Change After Phase 1	No Change After Phase 1
50.00	0.250	0.050	No Change After Phase 1	No Change After Phase 1
100.00	0.500	0.100	No Change After Phase 1	No Change After Phase 1
200.00	1.000	0.200	No Change After Phase 1	No Change After Phase 1
500.00	1.000	0.500	No Change After Phase 1	No Change After Phase 1
1,000.00	2.500	1.000	No Change After Phase 1	No Change After Phase 1
2,000.00		2.000	No Change After Phase 1	No Change After Phase 1
5,000.00 to 9,995.00		5.000	No Change After Phase 1	No Change After Phase 1

"Implementing a new scale of minimum spreads would require effort and may involve investments by different parties, therefore any decision to change should be supported by benefits and taken with care and prudence," said HKEx Deputy Chief Operating Officer Gerald Greiner. "The implementation of any changes to minimum spreads would be subject to the responses from the market, cost and benefit analyses and the approval of the Securities and Futures Commission. Once HKEx has received responses to this consultation, it will assess whether the market as a whole would benefit from the changes," Mr Greiner added.

Copies of the consultation paper are being despatched to Exchange Participants, listed companies and market practitioners. Copies are also available for collection at the Exchange Sales Counter at 1/F, One & Two Exchange Square, Central, Hong Kong. The consultation paper can also be viewed at or downloaded from the HKEx website at http://www.hkex.com.hk/eng/newsconsul/mktconsul/marketconsultation.htm. The consultation period ends on 6 October 2004.

Updated 06 Aug 2004