Hong Kong Exchanges and Clearing (HKEX) has announced it will launch its volatility control mechanism in derivatives markets on 16 January this year.
HKEX decided to postpone its initial launch in November last year following a technical issue, which has since been resolved.
The mechanism triggers cooling-off periods if there are attempts to trade futures contracts at a price more than 5% away from its last traded price within five minutes.
HKEX added there can be no more than one cooling-off period triggered per futures contract in a single trading session.
It applies only to the spot month and next calendar month contracts in the Hang Seng Index (HIS), Mini-HIS, H-shares Index (HHI) and Mini-HHI futures markets.
HKEX said the mechanism is “designed to prevent extreme price volatility arising from trading incidents (such as a "flash crash" or bad algorithms) and is being implemented after extensive consultation with market participants.”
A circuit breaker has already been introduced to HKEX’s securities market in August last year.