It's the last of the great floor shows

PUBLISHED : Saturday, 16 July, 2005, 12:00am
UPDATED : Saturday, 16 July, 2005, 12:00am

From bust to boom, scandals and frenzied traders, the era that started with open outcry closes

After almost 20 years the trading floor of the Hong Kong stock exchange closed yesterday and with it an era typified by local companies, frenzied floor traders and very long lunches.

Electronic trading systems have rendered floor traders a quaint relic from a simpler era and the refit of Hong Kong's dealing chamber comes at a time when the market is undergoing significant transformation, driven by the new class of mainland company mega-listings and ever more international dealing environment.

The floor may not be disappearing entirely but with a planned makeover expected to turn most of the cavernous 30,000 square feet facility into a financial market museum, the remaining operation will be little more than a sideshow to the major market activity conducted at lightning speed through off-exchange dealing terminals.

Yesterday's closing ceremony drew exchange bosses stretching back two decades and provided a moment of nostalgia in a market not noted for dwelling on what happened yesterday.

First out of the dealing area yesterday at 4.05pm was Stephen Lin, a broker for Radlan International who started working on the exchange floor after the Hong Kong Land facility opened in the freshly built Exchange Square.

'Back in those days you had to come up to the stage and confirm your client orders. The 'chalk and blackboard' period may have passed by then [1986] but as technology advanced, becoming fully automatic today, fewer and fewer people came to work in the hall.'

All dealing was conducted on the floor before the introduction of the first Automatic Order Matching and Execution System (AMS) in 1993.

'Telephone lines were normally busy in active trading days, so you would rush across the floor to trade,' recalls one broker.

That system was upgraded in 1996 and again in 2000 to allow straight-through processing of trades that fully removes the middleman.

The latest system allows a daily volume of 1.2 million trades to be processed at a peak rate of 200 orders per second. Where 21.9 per cent of all trades were conducted through terminals at the exchange in January 2000, that number had dropped to less than 2 per cent this month.

Holding out against change has been the small retail broker sector, which, while diminished in numbers and importance, has proven a resolute group with 287 remaining at their terminals last month compared with 608 in June 2000.

GC Capital broker Eric Leung, who has worked in the hall for 10 years, marvelled at the transformation in his career from the semi-automatic trading used in 1993-94 compared with today's fully automated approach.

'In the past decade we have witnessed great volatility. I still remember the first few months in 1997 when we had a really long bull run. There is still no comparison with the buying seen there, even today,' he said.

'In between, there were the Asian financial crisis and Sars when you would get only a few phone calls a day. I am glad to have been a part of this history, but I won't miss [the old days] too much.'

It was all very different back in 1986 when the grand design and modern equipment of the new facility saw Hong Kong's four competing exchanges merge to become the Stock Exchange of Hong Kong. The merger which resulted in a legislated monopoly in the trading of stock occurred in October of that year but the exchange had actually started functioning six months earlier.

On April 2, 1986, then exchange chairman Ronald Li Fook-shiu presided over the opening ceremony, having committed the exchange to a 20-year lease after turning down a government offer to buy the facility due to an apparent lack of funds.

Under its first lease the exchange paid a monthly rental of $450,000 compared with $1.04 million today. That will rise to $1.25 million a month from November when a new lease begins.

Then governor Edward Youde oversaw the merger of the old exchanges, resulting in the new homogenised dealing floor having 906 booths to accommodate all traders from the previous competing bodies - Hong Kong Stock Exchange, Kowloon Stock Exchange, Far East Exchange and Kam Ngan Stock Exchange. With trading conducted through the open outcry system, the decibel levels could frequently be deafening.

Within a year of the new exchange's launch it was enveloped in scandal after the October 1987 crash resulted in huge trading defaults and a four-day closure.

Its charismatic chairman Mr Li was later jailed and the government introduced a new market regulator in the shape of the Securities and Futures Commission.

Reminiscing yesterday, Hong Exchanges and Clearing chairman Charles Lee Yeh-kwong said: '[The trading hall] has served us through ups and downs and many significant events ... these events have highlighted Hong Kong's transformation in politics, economics and financial markets in the past 20 years.'

Christopher Cheung Wah-fung, chairman of Christfund Securities, said: 'The renovation of the trading hall marks the end of a chapter of our history. I'll miss the trading hall but all of us have to go forward and change with the times.'

Looking ahead, HKEx chief executive Paul Chow Man-yiu said the exchange would spend $50 million on the renovation and trading would continue on a limited scale in a corner of the hall.

Some brokers have complained that the $2,800 monthly fee to hold a trading booth is too expensive but Mr Chow was in no mood for the group's familiar whingeing. 'If [brokers] do not use the trading floor but instead use their offices to trade then they still need to pay telephone line fees and other equipment set up.'

The advent of online trading, bank financial supermarkets and the arrival of discounted commissions had appeared to herald the death knell of the traditional sole proprietor trader and not withstanding a strong market this year, that would appear to be the inevitable outcome.

Yet not all of Hong Kong's small brokers seem willing to go quietly. Syed Bokhary, a former stock exchange council member who runs his own firm and has traded on the floor for 20 years, had little interest in yesterday's closing ceremony, refusing to accept that anything fundamental had changed about the place.

'I do not see the need to do anything special with the hall. It's only a renovation, only a cosmetic change,' Mr Bokhary said.

'I intend to continue working there on Monday and after the renovation. To me, its trading as usual.'