Hong Kong is going to rejoin its developed market peers when it reintroduces a stock-market closing auction after a seven-year gap.
Hong Kong Exchanges & Clearing plans to start the system on July 25, it said Friday. Two market rehearsals are planned in May and June. HKEx scrapped its previous auction mechanism in 2009 after HSBC Holdings Plc saw its shares plunge about 10% in the final seconds of the day. The new system comprises a 10-minute trading session and was designed after HKEx officials reviewed about a dozen of their global peers.
The city's US$3.9 trillion ($5.3 trillion) stock market is the last of 22 global developed nations without a closing auction, a mechanism particularly favoured by index-tracking funds because of the stability it can bring to end-of-day prices, which they rely on.
Not only do officials at Hong Kong's market believe they've taken the best ideas from countries including the UK, Germany and Australia, they also claim their new offering will reduce opportunities for manipulation. Hong Kong currently derives closing prices in the last minute of trading, a practice used in Hungary, Bahrain and Colombia.
"One benefit of others doing it before us is that we've been able to learn from their experiences and incorporate the best elements," Roger Lee, head of markets at the exchange, said in an interview.
The new model will limit price moves and allow the market to close randomly in the final two minutes to deter gaming. Restricting order amendments and cancellations will also discourage price manipulation, according to the exchange.
The system needs to avoid the troubles of HKEx's first closing auction, which was pulled after a March 9, 2009 incident that saw HSBC's shares plummet. The bank's stock was already down 15% that day amid general volatility and concerns about deepening loan losses in the US, when the decline was exacerbated by trades in the final seconds of the closing auction and the shares ended down 24%.
"They had a bad experience when they adopted a closing auction some years ago, but the new model has very significantly improved," said Nick Ronalds, the managing director for equities at the Asia Securities Industry and Financial Markets Association.
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Hong Kong Exchanges & Clearing plans to start the system on July 25, it said Friday. Two market rehearsals are planned in May and June. HKEx scrapped its previous auction mechanism in 2009 after HSBC Holdings Plc saw its shares plunge about 10% in the final seconds of the day. The new system comprises a 10-minute trading session and was designed after HKEx officials reviewed about a dozen of their global peers.
The city's US$3.9 trillion ($5.3 trillion) stock market is the last of 22 global developed nations without a closing auction, a mechanism particularly favoured by index-tracking funds because of the stability it can bring to end-of-day prices, which they rely on.
Not only do officials at Hong Kong's market believe they've taken the best ideas from countries including the UK, Germany and Australia, they also claim their new offering will reduce opportunities for manipulation. Hong Kong currently derives closing prices in the last minute of trading, a practice used in Hungary, Bahrain and Colombia.
"One benefit of others doing it before us is that we've been able to learn from their experiences and incorporate the best elements," Roger Lee, head of markets at the exchange, said in an interview.
The new model will limit price moves and allow the market to close randomly in the final two minutes to deter gaming. Restricting order amendments and cancellations will also discourage price manipulation, according to the exchange.
The system needs to avoid the troubles of HKEx's first closing auction, which was pulled after a March 9, 2009 incident that saw HSBC's shares plummet. The bank's stock was already down 15% that day amid general volatility and concerns about deepening loan losses in the US, when the decline was exacerbated by trades in the final seconds of the closing auction and the shares ended down 24%.
"They had a bad experience when they adopted a closing auction some years ago, but the new model has very significantly improved," said Nick Ronalds, the managing director for equities at the Asia Securities Industry and Financial Markets Association.
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