Hong Kong Looks to Other Contracts for After Hours Trade

Hong Kong Exchanges & Clearing Ltd., which today starts after hours trading in equity futures, will later offer trading on currency, interest-rate and commodity futures, said bourse executive Calvin Tai.

The world’s largest exchange company by market value will open a trading session from 5 p.m. to 11 p.m. for standard contracts on the Hang Seng Index and the Hang Seng China Enterprises Index. This will create the infrastructure to later offer currency, interest-rate and commodity futures, Tai, co-head of equities, fixed income and currency, said in a telephone interview April 5.

The extra session will allow existing investors to hedge and adjust positions when news breaks in European hours, Tai said. Hong Kong owns the London Metal Exchange. The Shanghai Futures Exchange also plans to add after hours trading in a bid to become a more global marketplace, an official at the bourse said March 13.

“In the longer term, we believe we can appeal and make it more readily available to European and U.S. investors who are not currently trading,” Tai said. “This is new for Hong Kong, but not for the industry.”

Global exchange operators including CME Group Inc., ASX Ltd., NYSE Euronext, Deutsche Borse AG and Japan Exchange Group Inc. offer after hours futures trading on their derivatives platforms, the Hong Kong exchange said in its initial consultation paper in May 2011.

Tai said the Hong Kong exchange operator plans to expand after hours futures trading to mini contracts on the city’s two main indexes by the end of the year if the program is successful. There is no timeline to add futures on other asset classes, he said.

Changes Afoot

Local brokers are concerned that changes to Hong Kong’s market structure, with longer trading hours and the reinstatement of a closing auction, will mean they can’t compete.

Representatives from the Hong Kong Securities & Futures Professionals Association, the Hong Kong Securities Professionals Association and the Hong Kong Securities & Futures Employees Union spoke in opposition to after-hours futures trading at a Hong Kong Legislative Council financial affairs meeting Jan. 28.

“We are not in the business of guaranteeing that everyone can succeed and compete,” Charles Li, chief executive of Hong Kong Exchanges, told Bloomberg News in an interview Feb. 27. “What we will do is make sure the rules are fair, the rules are equal. To the extent there is a segment of the market that will be affected adversely by certain things, we are trying to see whether we can mitigate that.”

Local Protests

The city’s brokers protested after the exchange shortened its lunch break and promised to reinstate a closing auction for trading. Hong Kong Exchanges said shortening the midday break to one hour was necessary to align trading hours with China and is pressing for a closing auction to bring trading in line with international standards. The bourse previously had a two-hour break for lunch, the longest of any developed market.

Of the 571 Hong Kong stock-exchange participants, the biggest 14 accounted for 59 percent of the market in February and the largest 65 were responsible for 90 percent, according to statistics from the bourse’s website.

Tai said some local futures brokers already use a partner to trade futures for other markets and that this is a viable solution for those the do not build their own platforms.

“Brokers need to explore and find a suitable business partner to support this,” he said. “At the end of the day, how much business they can get off the night trading varies from one broker to the other, so they still have to decide whether to offer it.”

LME Takeover

Hong Kong Exchanges completed its $2.2 billion takeover of the London Metal Exchange in December as it seeks to broaden its business with its first overseas acquisition. The bourse plans to add commodities trading and clearing of LME products during Asian hours over the next three years, introduce clearing for over-the-counter commodity derivatives and expand mainland China’s participation in the exchange.

Hong Kong Exchanges agreed on June 28 to set up a joint venture to develop index-linked and equity derivative products with its mainland Chinese counterparts.

While Tai said Hong Kong Exchanges is working with mainland exchanges, the Shanghai after-hours-futures plan is a separate initiative.

The Shanghai Futures Exchange would explore “win-win” cooperation opportunities with Hong Kong Exchanges, Chairman Yang Maijun said in an interview March 8. China should accelerate opening commodities futures to overseas investors and set detailed regulations to allow local firms to hedge on overseas markets, Yang, a delegate of the National People’s Congress, said in proposals to the nation’s top legislature.

Shanghai Futures Exchange trades copper, aluminum, zinc, lead, natural rubber, fuel oil, steel, gold and silver futures.

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