Hong Kong Exchanges and Clearing Limited (HKEx) published a consultation paper today (Friday) to seek views on its proposal to implement trading halts that would allow its listed companies to publish announcements with price sensitive information (PSI)1 during trading hours.
Under the proposal, a listed company will be able to release a PSI announcement on the HKExnews website during the Stock Exchange's2 trading hours provided there is a short halt in trading of the company's shares to enable investors to digest the contents of the announcement. At present, companies are not allowed to publish PSI announcements during trading hours. If a disclosure obligation is triggered during trading hours now, trading in the company’s shares must be suspended immediately and will only resume in the next trading session following publication of an announcement.
An HKEx review found that most leading overseas markets allow publication of PSI announcements throughout the day. Trading will either continue without interruption or resume subject to a short trading halt after publication of the announcement.
In addition to bringing HKEx into line with international market practices, trading halts would significantly reduce the duration of periods when shares cannot be traded. They would also result in more accurate intraday securities price discovery since price discovery would occur as soon as possible after all material information relevant to a security’s value was released. Trading halts may also help investors holding products such as structured products, stock options and stock futures close out their positions to avoid bearing risk overnight.
"Given today’s technology, the status of Hong Kong as an international financial centre and the increasing globalisation of share trading, there is a clear need for the dissemination of listed issuers' announcements to be more timely and for the duration of any break in trading to be kept as short as possible," said Mark Dickens, HKEx’s Head of Listing.
"Increasingly, overseas issuers are choosing to list on our Stock Exchange. If they are listed on another exchange, investors overseas may be able to read their announcements during trading hours and continue trading. Trading halts would help avoid any disadvantages to Hong Kong investors in terms of information access and trading when an issuer is listed in Hong Kong and overseas," Mr Dickens added.
Major features of the proposed model are set out in Chapter 4 of the consultation paper. As trading halts would involve significant non-listing matters, the key proposals related to trading arrangements in the secondary market are set out in the appendix below. HKEx plans to meet with industry associations in order to gather their views on the trading halts proposal.
The consultation paper can be downloaded from the HKEx website. Interested parties are encouraged to respond to the consultation paper by submitting the questionnaire. The deadline for responses to the consultation paper is 8 October 2012.
| 1 |
PSI is defined as any information that might be reasonably expected materially to affect market activity in the price of a listed issuer’s securities. This would in general include notifiable transactions, fund raisings, general offers, results announcements and other disclosures of material information.
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| 2 |
The Stock Exchange of Hong Kong is a wholly-owned subsidiary of HKEx. |
Appendix
Key proposals related to trading arrangements:
Securities market
- Timing for lifting of trading halts. Share trading will not resume until at least 30 minutes after the PSI announcement is published on the HKExnews website. Any trading resumption will take place on the quarter hour or the half hour.
- Mid-session auctions upon lifting of trading halts. To facilitate price discovery, a 10-minute single-price auction will take place in the securities market for the relevant shares and structured products upon the lifting of a trading halt.
- Minimum trading time after lifting of trading halts. There must be at least 30 minutes of trading (10-minute auction and at least 20 minutes of continuous trading) after the lifting of a trading halt. Therefore, the latest trading resumption before the end of the trading day would be 3:30 pm on a normal trading day.
- Order handling. All existing orders in the securities market (including orders for the company's shares and any related structured products) entered before a trading halt are to be cancelled automatically by the Stock Exchange at the time of halt.
Derivatives market
- HKEx's stock options / stock futures order handling practices will remain unchanged. All outstanding orders will be purged automatically by the trading system at the time trading of the underlying shares is halted.
- There will not be a mid-session auction for stock options / stock futures. Trading of related stock options and stock futures will resume upon the completion of the mid-session auction for the underlying shares (the mid-session auction is described above).
Ends