Exchange operator Hong Kong Exchanges and Clearing (HKEx) says its securities market’s tick rule and related short selling restrictions will be suspended in the fourth quarter of this year, subject to the approval of Hong Kong’s Securities and Futures Commission (SFC).
The tick rule bars short sales below the best current ask price. HKEx believes it constrains trading activities and thus undermines market efficiency and price discovery. Related short selling restrictions require that a short selling transaction must be automatically struck through the electronic trading system, AMS/3, during the continuous trading session.
If the SFC approves the required amendments to the exchange’s rules. HKEx expects the changes to take effect on 5 November this year.
“The international trend is to move away from these types of short selling restrictions,” says said HKEx chief operating officer Gerald Greiner. “We believe these latest initiatives in relation to short selling further align Hong Kong market practices with international best practices and will further enhance the transparency, efficiency and competitiveness of the Hong Kong markets.”
When the tick rule and related short selling restrictions are suspended, the rule will not be applied to any selling orders, including orders input during the continuous trading session.
Short selling orders will be permitted to be input into AMS/3 during the pre-opening session or during the closing auction session that HKEx will implement in early 2008.
Short selling transactions not automatically struck through AMS/3, including those concluded by negotiation between two exchange participants, or as part of a direct business transaction, will be permitted to be input into AMS/3.
Under circumstances where the SFC considers it to be necessary, the regulator may require HKEx to reinstate the short selling restrictions. HKEx says the SFC will publish details of the circumstances under which it would review the reinstatement of the restrictions.