Hong Kong Exchanges and Clearing Limited (HKEx) announced today (Tuesday) that subject to market readiness the parallel trading arrangement for its securities market will be removed on 3 November 2008 (Monday) to streamline market operations. The plan resulted from a routine review of market operations.
Background
The parallel trading arrangement has been applied to securities which have undergone corporate actions such as consolidation, subdivision, change in board lot size or re-organisation involving share exchange other than on a one-to-one basis. In a typical parallel trading arrangement, a stock is traded briefly, usually for approximately three to five weeks, under both a temporary stock code and the original stock code after the effective date of a corporate action.
When the parallel trading arrangement was established in the 1980s, its main purpose was to facilitate settlement by physical share certificates after a corporate action was effective. However, settlement of trades is now done through CCASS (Central Clearing and Settlement System) electronically via book entries without the need to deliver share certificates.
Recent discussions with HKEx Participants, custodian banks, share registrars, advisors and issuers found that market participants generally support removing the parallel trading arrangement as it would simplify operations and would eliminate the possibility of split liquidity and confusion when the same stock is traded under two different stock codes.
Arrangement after removal of parallel trading arrangement
For all corporate actions with an effective date on or after 3 November 2008, the relevant stocks will only be traded under the original stock codes without using any temporary stock codes. The period between today’s announcement and the effective date will provide market participants with sufficient time to prepare for this change.
Corporate actions will continue to be announced by issuers and the relevant trading arrangements will continue to be posted on the HKEx website.
In addition, if a corporate action may cause some shareholdings to become odd lots, the issuer will be required to allow for at least five trading days between the announcement of the approval of the corporate action and the effective date of the corporate action to enable investors to make necessary adjustments to their shareholdings before the corporate action becomes effective.
“The parallel trading arrangement is largely a legacy issue. Removing it will benefit market participants by making market operations more streamlined,” said HKEx Head of Cash Market Eric Yip. “We will continue to work on initiatives to further enhance market efficiency and to make the Hong Kong securities market more competitive and robust.”