HKEx axes closing auction due to price volatility

Hong Kong exchange group Hong Kong Exchanges and Clearing (HKEx) will suspend the closing auction session (CAS) of its securities market from 23 March – less than a year after its introduction – because of price volatility during the session.
By None

Hong Kong exchange group Hong Kong Exchanges and Clearing (HKEx) will suspend the closing auction session (CAS) of its securities market from 23 March – less than a year after its introduction – because of price volatility during the session. HKEx first implemented the closing auction on 26 May 2008.

The exchange had originally planned to introduce a price control mechanism to the closing auction on 22 June this year to control volatility, which would have limited shifts to 2% of the price at the close of the continuous trading session, but has now scrapped this plan.

From 23 March, the securities market will close at 16.00 instead of 16.10. HKEx will use its pre-CAS method for calculating the closing prices of securities, which involves calculating the median of five price snapshots taken during the last minute of the afternoon session. Trading of stock index futures and options in HKEx’s derivatives market will end at 16.15 instead of 16.30, and trading of stock options and futures close of 16.00.

The change follows the completion of a market rehearsal on 14 March and approval of the necessary rule amendments by the Hong Kong Securities and Futures Commission.

HKEx first proposed scrapping the closing auction session on 12 March. The turning point appeared to come on 9 March, where the share price of banking group HSBC fell 12.5% in the closing auction, after already falling 13.3% in the continuous trading session.

On 20 March, more than 90% of exchange participants using broker supplied systems have declared their readiness for the suspension of the closing auction. The remainder have indicated their readiness, and are expected to submit their declarations after complete end-to-end testing and a second rehearsal, which will take place on 21 March.

Thirty-three of the 43 direct connection information vendors completed the 14 March rehearsal and the majority of the remaining 10 have separately confirmed their readiness.

HKEx’s plans to introduce a 2% cap on price movements in the closing auction had attracted controversy. Some market participants felt it would limit trading volumes in the auction, while others felt the cap would do little to reduce manipulation and gaming during the closing auction.

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