HKEX says new market circuit breaker designed on ‘light-touch’ principle

Hong Kong’s stocks circuit breaker, slated to be introduced in August, has been engineered for a “light touch” such that it will help calm markets while assuring investors of continuing liquidity and turnover, according to officials.

They added that the approach taken is different from that of the ill-fated circuit breaker mechanism introduced in Shanghai earlier this year.

Hong Kong Exchanges & Clearing (HKEX) will launch a Volatility Control Mechanism (VCM) on August 22, which is designed to temper stock movements by temporary halting trade when prices fluctuate beyond a pre-determined range.

“The VCM is quite different from mainland China’s circuit breaker,” HKEX’s Head of Market Operations Roger Lee said. “The chance is small that it will lead to similar scenes in Hong Kong markets.”

He added that the exchange planned to re-introduce a daily Closing Auction Session on July 25 after a seven-year absence, as part of changes to help reduce volatility of closing prices.

China implemented a circuit-breaker system on January 4, but suspended it after only four days of operation as the mechanism ignited downward pressure on stocks and stoked fears about the health of the markets.