Hong Kong Exchanges and Clearing Limited (HKEx) announced today (Friday) that its securities market’s tick rule will be suspended in the fourth quarter of this year, subject to the approval of the Securities and Futures Commission (SFC).
The tick rule bars short sales below the best current ask price. It constrains trading activities and thus undermines market efficiency and price discovery. Related short selling restrictions require that a short selling transaction must be automatically struck through the electronic trading system, AMS/3, during the Continuous Trading Session.
When the tick rule and related short selling restrictions are suspended:
Under circumstances where the SFC considers it to be necessary, HKEx may be required by the SFC to reinstate all the above mentioned short selling restrictions. HKEx understands that the SFC will publish details of the circumstances under which it may review the necessity of such reinstatement.
“The international trend is to move away from these types of short selling restrictions.” said HKEx Chief Operating Officer Gerald Greiner, “We believe these latest initiatives in relation to short selling further align Hong Kong market practices with international best practices and will further enhance the transparency, efficiency and competitiveness of the Hong Kong markets.”
Subject to formal approval by the SFC of the necessary amendments to the Rules of the Exchange, the changes are expected to take effect 5 November 2007