Hong Kong Exchanges and Clearing Limited (HKEx) published today (Friday) its consultation conclusions on the proposed introduction of a price control mechanism in its securities market’s closing auction session (CAS).
HKEx received 102 submissions during the consultation period from a wide spectrum of respondents, including brokerage houses, industry associations, asset management firms, banks, law firms and individual investors.
Many respondents who support maintaining the CAS and those who favour suspending it share similar concerns about extreme securities price movements during the session. Against this background, HKEx is of the view that introducing a percentage-based price limit to restrict excessive price movements during the CAS should address the concerns of most respondents.
The price limit will be 2 per cent of nominal prices at 4 pm. The limit has been set at a more stringent level than those proposed in the consultation paper in response to concerns about instances of extreme price volatility in the CAS.
Back testing of trading data from December 2008 showed that, on average, 95 per cent of the CAS turnover would not have been affected if a 2 per cent price limit had been in place.
HKEx will review the price limit six months after its implementation. Any possible adjustments would be subject to further market consultation.
Subject to the approval of the necessary rule amendments by the Securities and Futures Commission (SFC) and market readiness, implementation of the price limit during the CAS is tentatively scheduled for the second quarter of this year. HKEx will advise Exchange Participants of the operational arrangements in due course.
The consultation conclusions report and copies of submissions are available on the HKEx website. The consultation paper issued by HKEx on 28 November last year to solicit market comments on the proposed introduction of a price control mechanism in the CAS is on the HKEx website.
In addition to the implementation of a price control mechanism, both the SFC and HKEx have real-time market surveillance programmes to monitor trading activity and price movements of securities. HKEx will inform the SFC of unusual market activities and cases of suspected manipulation for the SFC’s investigation and potential criminal prosecution.