Hong Kong Exchanges & Clearing Ltd. expects to reintroduce daily closing auctions for equity trading next year, allowing investors to improve their portfolio management.
The bourse is the only developed market exchange that doesn’t use the pricing mechanism to allow most orders to match before trading closes. The auction would reduce index tracking errors for investors and improve HKEx’s competitiveness.
“From a market structure point of view we are keen to implement it,” Romnesh Lamba, the company’s co-head of global markets, said in an interview. “It’s the right thing to do. It’s going to get a fair amount of support from the buy side as well as the large broker community.”
The closing auction was eliminated more than six years ago, following an 11 percent plunge in HSBC Holdings Plc shares in the last seconds of trading on March 9, 2009, extending the day’s decline to 24 percent.
The procedure will be rolled out sometime next year after the market consultation closed on April 10, according to Lamba.
“A closing mechanism will enhance creditability around trading,” said Ben Valentine, the head of pan-Asia electronic execution at Citigroup Inc. in Hong Kong. “It’s great to see the HKEx take this proactive approach with its recent engagement with both exchange participants and their clients.”
The new system would have a 5 percent price limit for individual stock movement and will only be deployed for about 300 companies, or about a sixth of all equities trading on the exchange, Lamba said.