Monday August 22 2016

News Source: Global Exchanges

Focus: Credit Rating

Type: General




Hong Kong Exchanges and Clearing Limited (HKEX) is set to roll out its Volatility Control Mechanism (VCM) in order to protect market integrity by preventing extreme price volatility arising from major trading errors and other unusual incidents in its securities market, on Monday, 22 August 2016.

HKEX proposed the VCM in a consultation paper after the G20 and the International Organisation of Securities Commissions issued guidance on implementing control mechanisms in trading venues to deal with systemic risks arising from volatile market situations.  Based on the consultation feedback, HKEX decided to proceed with implementation of the VCM after concluding that there was substantial market support for its proposal.

Many international exchanges have a mechanism to control extreme price volatility.  In the case of HKEX`s VCM, a simple and light-touch model was chosen after extensive consultation with market participants, with a view towards protecting investors while minimising trading interruptions.

How HKEX`s VCM for its Securities Market Works

  • Only applied at the individual security level to Hang Seng Index (HSI) and Hang Seng China Enterprise Index (HSCEI, or H-shares Index) constituents (currently 81 securities)
  • An attempt to trade a security covered by the VCM at a price more than 10 per cent away from its last traded price 5 minutes ago will trigger a cooling-off period of 5 minutes where trading of the security can continue, but within a band
  • Maximum of one trigger per security in each of the two (morning and afternoon) trading sessions
  • Cooling-off period does not apply in the opening and closing auctions (9:00 to 9:30 am and 4:00 to 4:08 – 4:10 pm), the first 15 minutes of the morning and afternoon trading sessions (9:30 to 9:45 am and 1:00 to 1:15 pm) and the last 15 minutes of the afternoon session (3:45 to 4:00 pm) to allow free price discovery

The VCM is scheduled to be rolled out in HKEX`s derivatives market in the fourth quarter of this year.  It will apply only to the spot month and next calendar month contracts in the HSI, Mini-HSI, H-shares Index (HHI) and Mini-HHI futures markets (a total of eight contracts).

Further details of the VCM can be found on VCM and CAS on the HKEX website

Click on the link above for further details