Hong Kong’s main market is set to introduce volatility controls and a closing auction, following a positive response to proposals from its members.
A recent consultation paper from Hong Kong Exchanges and Clearing (HKEx) asked whether it should introduce a volatility control mechanism (VCM) to safeguard its markets and whether it should introduce a closing auction session (CAS). Both measures received support and will be implemented in mid-2016.
The VCM will be able to be triggered once pertrading sessions, but exclude the first 15 minutes of the morning and afternoon trading sessions and the final 15 minutes of afternoon trading. It is intended to prevent volatility shocks from spiraling into a market crash.
The CAS will end at 4.10 and take orders for a five minute period and will bring HKEx in line with many other exchanges which offer end-of-day auction periods.
There will be two phases to implementation, with phase one of the CAS consisting of a narrower range of securities and funds before rolling out to all stocks approximately six months after introduction.
The initial phase of the VCM will also cover a small range of stocks before being rolled out widely in phase two.
HKEx will give firms a year to prepare their systems for the change, which is set to begin rolling out in mid-2016.
Roger Lee, head of market operations at HKEx, said: "We are pleased that the majority of respondents from the various market segments supported the implementation of the two market microstructure reforms, which will put us on par with other leading exchanges.
"We analysed all market feedback, including the reasons given by those who did not support the proposals, and have enhanced our VCM and CAS models to address the key concerns that were raised. The market will be given an adequate lead time of one year to prepare for the implementation of these two initiatives."