SFC stalls electronic trade in HSI futures as tests fail
The Securities and Futures Commission has delayed approving the switch of HSI futures to electronic trading after problems were found during tests.
The SFC's board met futures exchange officials yesterday and told them the clearance could not be given because of delays in order executions and breakdowns in the Hong Kong Automated Trading System (HKATS) in three rounds of tests, according to an SFC source.
The SFC would hold off giving its approval until after the final round of testing this Saturday, the source said.
The decision raises the chances that electronic trading in HSI futures will not start on August 2 as scheduled.
Brokers said not only did problems continue to appear in the third round of tests last Saturday, they were worse than those encountered in two previous rounds.
'The system this time took more than an hour to confirm orders during the test,' a broker who participated in the simulation said.
'In the previous two rounds, it only took about 10 minutes,' he said.
'Generally speaking, trouble will appear if it [the time to confirm orders] exceeds one minute, because we can't know if the transactions are completed until we get the order confirmation from the exchange.' Under the present open-out-cry system, it takes about 30 minutes to confirm orders, he said.
The futures exchange yesterday admitted brokers encountered 'some difficulties' in Saturday's test.
However, it blamed an exceptional volume of orders for the HKATS's failure in the tests.
According to the exchange, 68,926 deals were pumped into HKATS in the four-hour test - compared with about 47,000 in the previous one.
It said five million contracts were traded, up from 4.5 million in the previous test.
'That is nine times the deals traded on our historic peak - and 350 times over our average trading volume,' said Royce Yuen, the futures exchange's executive director.
Mr Yuen said the SFC and the exchange had agreed yesterday to set guidelines to prevent too many orders being pumped in by a brokerage and system crashes.
The SFC would only allow the exchange to move to electronic trading when it was technically ready, the SFC source said.
'HSI futures trading accounts for more than 90 per cent of local derivatives trading,' he said.
'It would damage the reputation of the local market if the futures market had to be closed down due to the system failure.' The next HKATS test on Saturday is believed to be the last chance for the futures exchange to prove that the HSI futures migration can proceed on schedule.
'We [the SFC and the futures exchange] both agreed to wait for the result of the final test,' Mr Yuen said.