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