Hong Kong Exchanges and Clearing (HKEx) kicked off a consultation exercise yesterday on reinstating the closing auction session in Hong Kong's securities market, but local brokers doubt it will be enough to prevent market manipulation. HKEx has proposed reintroducing a closing auction and installing new volatility controls. The consultation will last 12 weeks and close on April 10, with HKEx saying it aimed to publish the conclusion by the end of the second quarter. The closing auction has been a controversial measure, supported by international players but opposed by local brokers. "There is no need to complicate simple things. The transparency of the new mechanism is still insufficient, worries about making the market are still lingering," said Christopher Cheung Wah-fung, the legislator for the financial services sector. The proposal includes new measures such as a 5 per cent price limit with reference to the end of the afternoon trading session, and a random closing time. "Auction transparency is enhanced by displaying the possible indicative equilibrium price range," HKEx said. But local brokers said the new mechanism would still be risky. "The 5 per cent price limit is too wide," said Francis Lun Sheung-nim, chief executive of GEO Securities. "There would still be room for manipulation. I think a 1 per cent price limit is enough." Exchanges in most countries use auctions to set closing prices through tender, with the most common order becoming the closing price. Hong Kong adopted the system in May 2008 but suspended it 10 months later after a huge swing in the share price of HSBC, the most widely held stock in the city. Local brokers blamed the closing auction system for the sudden plunge of HSBC's share price by more than 10 per cent to HK$33 during a closing auction session in March 2009. "The closing auction system led to market manipulation by big brokerages. The HSBC case in 2009 is an example," Lun said. "HKEx has been listening to the views of big brokerages only. All small brokers have been opposing this for years but they just ignored us." HKEx insisted the system could help safeguard retail investors. "Without a closing auction system, there's a tracking error that hampers the fund's return and results in lost performance that hurts general retail investors," it said. The primary users of the closing auction system were institutional investors, including passive funds and retirement funds, with mandates that required them to trade at the closing price, HKEx said. "Closing auction may be a global trend. But [regulators] should fully consider the questions and see if there could be better ways," said Yim Fung, chairman of Guotai Junan International, a mainland-based brokerage in Hong Kong. The consultation also covers a proposed volatility control mechanism for securities and derivatives, which would cover 81 constituent stocks of the Hang Seng Index and the Hang Seng China Enterprise Index. Lun said that mechanism was less controversial than the closing auction.