Hong Kong Exchanges and Clearing Ltd is the holding company for the city’s stock exchange, futures exchange and clearing company. Its market capitalisation made it the world’s biggest listed bourse as of the end of 2012. In December 2012, the HKEx clinched the US$2.2 billion takeover of the London Metal Exchange, the world's biggest marketplace for industrial metals.
Brokers remain doubtful about Hong Kong stock exchange's need for circuit breakers
Exchange study could lead to system preventing wild gyrations of prices caused by flash trading, but brokers say there is no need
Brokers balked at a stock exchange study that could lead to the introduction of circuit breakers to protect against flash trading of stocks - which can send shares gyrating wildly - saying Hong Kong has adequate suspension rules in place already.
Securities and Futures Commission executive director Keith Lui told the South China Morning Post last week that the SFC supports the carrying out of a study by Hong Kong Exchanges and Clearing on a possible circuit breaker system to match those in place in the United States, India, Thailand, Taiwan and on the mainland.
"[We're] different from the US, where the stocks continue to trade even when the companies are announcing results or deals," said Jeffrey Chan Lap-tak, chairman of the Hong Kong Securities Association.
"HKEx requires companies to suspend trading for the whole trading session or sometimes up to several days until they release an announcement to the markets.
"If we had circuit breakers, it would lead to more companies suspending trading. This would not be welcomed by investors, as they would like to trade their stocks."
HKEx considered introducing circuit breakers in 2004 but eventually dropped after strong opposition.
A decade later, many brokers still dislike such a system.
"Should all orders be cancelled when a circuit breaker is triggered or would they still be valid after the resumption of trading? There are many issues that would need to be sorted out first," said Jojo Choy Sze-chung, vice-chairman of the Institute of Securities Dealers.
"The stock exchange would also need to ask if retail investors would like the idea. We should not just copy from overseas markets that do not have so many retail investors as Hong Kong."
Circuit breakers have been introduced abroad in stock and commodity markets to stop shares or prices from plunging or spiking in a matter of seconds. Such volatility is caused mainly by computer programs based on algorithms that take advantage of tiny differences in price to make investors money.
A flash crash in the US in May 2010 erased US$862 billion from the value of equities within minutes. The debacle was blamed on high-frequency traders, which gave the impression that equity trading on the New York Stock Exchange or the technology-heavy Nasdaq was being run on autopilot.
The flash crashes were not confined to those exchanges, though, as trading in commodities like cocoa was likewise hit by algorithmic trading programs.
The fear among market participants and observers was that an "algo" trading program could run out of control. For instance, within five or 10 minutes, it could spit out trading orders that were supposed to be spaced out over five to 10 days.