Li floats return for HKEx closing auction

A closing auction has been absent from Hong Kong's stock exchange since 2009, but hopes of reinstatement have resurfaced.

A closing auction has been absent from Hong Kong's stock exchange since 2009, but hopes of reinstatement have resurfaced.

In a blog published 8 May, Charles Li, CEO of Hong Kong Exchanges and Clearing (HKEx), draws attention to unresolved matters such as the continued absence of the Hong Kong stock market's much-missed closing auction.

Specific reference is made in the blog entry, titled 'Connecting the dots for a full picture of HKEx's plans'. "Other microstructure changes may require more discussion with the market, one is closing auctions," wrote Li.

The mere mention of the reinstatement of the closing auction may give optimism that the matter has not been forgotten by the authorities. 

However, this is not the first time that the Hong Kong exchange has encouraged the market on this subject. In mid-2011, views were invited on the reinstatement of the auction, but virtually no public comment has been made since, despite industry speculation on behind-the-scenes preparations for a new end-of-day process.

The closing auction was shut down in 2009, during a period of volatility, which led to short selling concerns and worries of markets falling sharply. After 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 promptly mothballed.

The loss 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.

Rather than being a clearly defined and transparent point, such as the auction used to produce, it is now a more convoluted process of establishing closing price points in the last minute of business. In his previous comments, Charles Li has acknowledged that this mechanism is potentially vulnerable to manipulation.

As we have reported in the past, there appears to be wide support in Hong Kong's asset management community that they would like the closing auction back, and such a client consensus derived from both buy- and sell-side may still carry some momentum with the exchange operator.

The CEO's comments accompanied HKEx's first quarter 2013 report, which revealed that daily share turnover for the quarter was up 18% from HK$63.2 billion to HK$74.4 billion. The daily number of stock option contracts traded rose 17% to 278,115.

HKEx also announced it has appointed Paul Kennedy as group CFO. Kennedy has worked in senior executive roles at the Hong Kong Securities and Futures Commission, KPMG and HSBC. For the last six months, he has been an adviser to Li.