Hong Kong stock exchange to extend circuit breakers to futures products to temper wild gyrations in equities and derivatives
- New system will trigger multiple cooling-off periods, limiting price movements within 5 per cent on either side of the last-traded price
- Hong Kong adopted a light-touch approach by implementing the circuit breaker system in stages covering stocks, derivatives and futures products
The move will add to similar controls put in place since August 2016, first on extreme gyrations in equities and a year later on derivative products. They followed a series of events that provoked regulatory probes into market misconduct such as price manipulation and pump-and-dump scandals.
“The volatility control mechanism (VCM) has worked as intended without any negative feedback from the market,” said Tom Chan Pak-lam, chairman of Hong Kong Institute of Securities Dealers, the local brokerage industry body. “In many cases, sharp and sudden price movements were smoothed out as the cooling-off periods allowed participants to react while trading continued.”
During the cooling off period, the investors can only trade within a 5 per cent limit on either side of the last price before the circuit breaker is triggered, according to HKEX, the world’s biggest exchange operator by market value. The enhancement was made “to better safeguard market integrity,” it added.
The exchange did not have any price control until August 2016, while operators in mainland China, Japan, Singapore and the US markets have had them earlier for decades. The circuit breaker has been triggered 26 times in Hong Kong’s stock market since it was introduced, according to the HKEX, the latest involving sofa maker Kasen International Holdings on March 3. To date, none has been triggered in the derivative market.