The move will add to similar controls put in place since August 2016, first on extreme gyrations in equities and a year later on derivative products. They followed a series of events that provoked regulatory probes into market misconduct such as price manipulation and pump-and-dump scandals.
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“The volatility control mechanism (VCM) has worked as intended without any negative feedback from the market,” said Tom Chan Pak-lam, chairman of Hong Kong Institute of Securities Dealers, the local brokerage industry body. “In many cases, sharp and sudden price movements were smoothed out as the cooling-off periods allowed participants to react while trading continued.”
HKEX incoming CEO Nicolas Aguzin, the former Asia Pacific chairman and chief executive officer at JPMorgan Chase’s private banking arm. Photo: SCMP/Handout alt=HKEX incoming CEO Nicolas Aguzin, the former Asia Pacific chairman and chief executive officer at JPMorgan Chase’s private banking arm. Photo: SCMP/Handout>
During the cooling off period, the investors can only trade within a 5 per cent limit on either side of the last price before the circuit breaker is triggered, according to HKEX, the world’s biggest exchange operator by market value. The enhancement was made “to better safeguard market integrity,” it added.
The exchange did not have any price control until August 2016, while operators in mainland China, Japan, Singapore and the US markets have had them earlier for decades. The circuit breaker has been triggered 26 times in Hong Kong’s stock market since it was introduced, according to the HKEX, the latest involving sofa maker Kasen International Holdings on March 3. To date, none has been triggered in the derivative market.
Hong Kong’s circuit-breaker system is now more in line with best international market practices, but with some inherent differences, Chan said. In mainland China on the Shanghai and Shenzhen exchanges, a price limit of 10 per cent lock prices within a tight range everyday, while US operators apply a wide system that could halt trading in the entire market.
It will cover the spot month and next calendar month futures contracts on the Hang Seng Index, Mini-Hang Seng Index, Hang Seng China Enterprises Index and Mini-Hang Seng China Enterprises Index, HKEX said.
“The effectiveness of this mechanism in certain situations, such as panic selling, will be relatively obvious,” said Kenny Ng Lai-yin, a strategist at Everbright Sun Hung Kai. “However, if it is a sudden [report of] bad news that causes the fundamentals of individual stocks or the market to change, then even the volatility control mechanism might not prevent [them] from going down further in future.”
The Securities and Futures Commission in March also worked with the police to crack down on a suspected “pump-and-dump” scam on social media involving a Hong Kong-listed company. Twelve people were arrested and more than HK$900 million (US$115.8 million) of suspected illegal proceeds were frozen.
“HKEX is committed to ensuring its markets operate in an open, fair and orderly manner, and as part of this we have robust rules and procedures to manage through extreme market volatility,” according to a spokeswoman of the exchange.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.
