Hong Kong exchange to curb volatile stock trading, though not all agree

While the Hong Kong stock market prepares to curb volatility and "fat-finger errors", not all brokers are happy with the proposed reforms.

Brett McGonegal, chief executive of financial firm Reorient, is among those who reject the idea of any trading controls.

"I believe the market is the most efficient pricing mechanism in the world and that larger price swings should not be controlled by the exchange," McGonegal said. "I don't believe a market participant should be restricted from accessing liquidity at any price."

The Hong Kong Exchanges and Clearing board is to cast a vote on the largest trading reform in recent years this week, which, if implemented, will mean the city's stock exchange will introduce trading controls for the first time. HKEx chief executive Charles Li Xiaojia last week said the system may be introduced as early as next year.

The volatility control system proposed by the HKEx in January will bring Hong Kong in line with the international practice of halting stocks moving too quickly. The exchange suggested it introduce a five-minute cooling-off period if the price of any of the 81 constituent stocks of the Hang Seng Index and the H-share index moves up or down 10 per cent from the last trade. One stock would have four such cooling-off breaks a day - twice in each of the morning and afternoon sessions.

The proposed model in Hong Kong is similar to the one in Singapore, which in turn is not as stringent as those in the US and Europe, where the entire market or hundreds of stocks can be suspended in a day if things get too hot. It is also different from the mainland which caps share price movements at 10 per cent in either direction.