The proposed introduction of after-hours futures trading (AHFT) by the Hong Kong Exchanges and Clearing (HKEx) is aimed at attracting European and US investors, but may also support the exchange's key strategic goal of meeting latent international demand for renminbi-denominated products.
“Over time, HKEx expects that AHFT could attract more European and US investors to participate in its futures market both during and after their working hours, which would add business for exchange participants. But in the short run, HKEx expects participation to come mostly from exchange participants' existing clients,” a spokesperson said, adding that AHFT would be another potential source of business growth for HKEx.
After-hours trading is a prerequisite for HKEx to support asset classes traded on a global basis. The new service would allow investors to hedge or adjust positions in response to market news and events in the European and US time zones during the European and US business day.
HKEx published a consultation paper on May 30 to seek views on its proposal to introduce AHFT to strengthen Hong Kong's derivatives market. The exchange is proposing trading of three futures contracts – Hang Seng Index (HSI) futures, H-shares Index (HHI) futures and gold futures – from 30 minutes after the current market close (16.45 local time for the index futures and 17.30 for the gold futures) until 23.15.
The consultation paper covers proposed operating arrangements for after-hours futures trading relating to products, trading, clearing and settlement, and risk management. Responses can be made via a questionnaire by 8 July.
The move will bring HKEx in line with existing futures market practice.
Many Hong Kong-based futures brokers – include at least half of HKEx's 183 Futures Exchange Participants (FEPs) – are already open in the evening to offer trading of European and US futures during London and New York business hours. The FEPs that already trade after Hong Kong trading hours account for nearly 90% of HSI futures turnover and nearly 95% of the HHI futures turnover.
Eight of the top 10 derivatives exchanges, in terms of stock index futures turnover, offer after-hours trading. In major derivatives exchanges, after-hours trading accounts for 15-37% of the turnover executed during regular trading hours.
In addition to aligning HKEx's futures market with practice in other leading markets, the move would help to position the exchange for more renminbi-denominated business, according to Calvin Tai, head of trading at HKEx.
“It would prepare us to take advantage of the opportunities that will result from Hong Kong's further development as an international financial centre and offshore renminbi centre,” he said. Listing the key strategic reasons for the proposal, the
consultation paper notes, “With Hong Kong becoming a renminbi) offshore centre, after-hours trading
will enable HKEx to serve international trading interest relating to RMB products in the future.”
There is no plan to introduce after-hours trading for the securities market. “HKEx has not seen any major after-hours trading needs in its securities market.
In addition, after-hours trading is not a common practice among major stock exchanges,” the spokesman noted.
The HKEx spokesman added that facilities at the exchange's Next Generation Data Centre (NGDC), now under construction, would be available during AHFT. As part of its NGDC plans, the exchange aims to build an ecosystem comprised of HKEx systems, exchange participants, information vendors, technology vendors and telecommunication providers, with operational support for hosted customers provided. “The offering of hosting services is in line with the latest global exchange industry trends. Feedback in Hong Kong has indicated a strong desire for value-added hosting services and HKEx is confident that its exchange participants and other constituents will see the benefits of its NGDC and hosting services projects,” he said.
Author: Jill Wong