Jul 11, 2012
HKEx closing auction return closes in
The closing auction looks set to return to the Hong Kong
Exchange after a three-year hiatus. Industry lobby groups have been busy
pushing for some time for a return of the specialised mechanism for determining
the closing price of the markets.
Closing auctions were considered one of the
“hot topics” at a recent Asian Trader Forum, with some participants reporting
informal surveys that ranked it as the key issue HKEx needs to deal with, above
issues like colocation and latency. Meanwhile, the HKEx has reportedly begun
considering a move to re-instate it, according to a Bloomberg interview with
its COO, Gerald Greiner.
“The expectation from most of the buy-side is that it will
come back sooner rather than later,” said Matthew Saul, head of trading for
Asia ex-Japan at Fidelity Investments in Hong Kong, who believes the
overwhelming industry support for closing auctions is generating the impetus
needed to bring back the auctions. “Both sell-side and buy-side are onboard,
and I don’t think retail brokers really mind,” said Saul, who notes that while
there has been some resistance from independent local brokers in Hong Kong, he
feels they will be in favour of the move as long as their concerns are met.
“The benefits for the buy-side is clearer pricing and the
efficient bunching of liquidity,” said Saul. A Deutsche Bank survey of its
clients in April found that they unanimously supported the re-introduction of
closing auctions.
Previously, the closing auction was removed in 2009 on
concerns it was producing erratic results. And there seems to be agreement from
participants that a re-introduced system would need improvements. One buy-side
trader commented that the previous system was “complex and cumbersome” and some
issues stemmed from the fact that it was only semi-opaque. One added that if a
newer system was more transparent, it would likely be well received. Hong Kong
is the only major international market that does not currently use closing
auctions.
However, despite Greiner’s public endorsement, a spokesman
for HKEx was more circumspect, giving no firm commitment to the change. Greiner
himself emphasised the need to address problems with the previous model first.
The HKEx said it “continues to look at potential market microstructure enhancement
measures that will help improve execution efficiency for investors and enhance
Hong Kong equity market’s global competitiveness”. However, the spokesman added
that there was currently no timetable for this initiative and underlined that
any future proposals would be put forward for public consultation before
implementation.
By Harry Thompson