Charles Li, the CEO of Hong Kong Exchanges and Clearing (HKEx), has said that reinstatement of the Hong Kong closing auction will an issue to be addressed in an upcoming market consultation. This process is expected to take place sometime during 2014.
The catalyst for the consultation is the high level of institutional demand. The closing auction has been absent from Hong Kong’s stock exchange since 2009, when during a period of volatility, short selling concerns rose and there were worries about markets falling sharply . Following a day in which HSBC’s share price fell 13.3%, the closing auction drove it down by a further 12.5%. The auction was shelved immediately.
In mid-2011, views were invited on the reinstatement of the auction, but nothing happened subsequently. Last spring Charles Li speculated on his blog that consideration might be given to reinstatement.
The absence of the auction has caused difficulties for brokers and buy-side funds, both for establishing valuations as well as in trying to hit a closing price.
Li has also announced that an industry consultation on the subject of circuit breakers would also take place in 2014, and that pre-trade risk management would be put in place later this year, in order to prevent high risk orders from being sent to market.