Exchange must justify moves for spread change, says SFC
THE Hong Kong Stock Exchange must present sufficient market data to the Securities and Futures Commission (SFC) to justify reversion to the original share spread on stocks valued above $10, says a SFC spokesman.
The spokesman confirmed yesterday talks between the council's executive committee and the SFC chairman and vice-chairman aimed at resolving the long-standing deadlock on restoration of the share-trading spread.
However, according to exchange sources, the meeting saw the SFC re-affirm its earlier decision to revert to the old spread for stocks below $10, with those priced above $10 using the new system.
'The ball is in the council's court,' said Bill Weeks, senior manager of public affairs in SFC.
'If the council wants to make amendments to what we have approved, its request has to be accompanied by market justification. Until we receive that, we can't act.' The SFC will look at the market information and assess how the new share spread system has affected turnover, liquidity and market transparency.
The stock exchange will decide on its next move tomorrow in a special council meeting.
However, it is unlikely the council can come up with convincing market statistics to support its case for a complete restoration of share spread to the pre-July 1 level.
A few weeks after the new spread was put into practice, the SFC was presented with some market trading statistics compiled by the exchange trading and settlement committee.
After studying the data, the SFC decided it did not support a full reversion, but conceded that there seemed to be a decrease in turnover for stocks valued below $10.
'The decline in turnover for stocks valued above $10 was not so much of a result of the new spread,' Mr Weeks said.
Other things which happened during the period, such as the uncertainty of the US interest rates, were believed to have caused the slackening in trading.
Based on the argument, the SFC rescinded the new spread for stocks below $10.
At the time, the trading and settlement committee had suggested reverting to the old spread for stocks priced below $10, but the suggestion was overturned by council members who finally decided to apply for a total reversion to the old system.
'The data for stocks above $10 did not indicate a clear pattern of how its trading volume was affected,' a council member said.
'Most members were worried by the drop in turnover and were eager to go back to a system which had worked well all along,' a council member said.
He said there would be a firm decision on the share trading issue at tomorrow's meeting.
'Some way or another, I think there will be a decision as the issue has been dragging on for too long, something that may not be in the best interest of all parties concerned,' he said.