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HKEx researches "Hong Kong version of the fuse mechanism" to avoid Hong Kong becoming a "big crocodile cash machine"

May 15, 2019 09:43
source: Zhitong Financial Network

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Summary
[The HKEx researches the "Hong Kong version of the fuse mechanism" to prevent Hong Kong from becoming a "big crocodile cash machine"] According to market sources, the Hong Kong Stock Exchange (00388) is initially consulting the industry on the "Hong Kong version of the fuse mechanism" (Circuit Breaker) The view is that when there is a major market crisis in Hong Kong, such as when the Hang Seng Index drops a certain percentage significantly, whether Hong Kong needs to adopt relevant mechanisms to suspend market transactions, so as to avoid Hong Kong becoming a "big crocodile cash machine". (Zhitong Finance Network)

Market news revealed thatHong Kong Stock Exchange(00388) is initially consulting the industry on the "Hong Kong version of the Circuit Breaker" (Circulation Breaker), that is, a major market crisis in Hong KongHang Seng IndexWhen there is a significant drop in a certain percentage, is there any need for Hong Kong to adopt a mechanism to suspend market transactions to prevent Hong Kong from becoming a "big crocodile cash machine"?

  Initial consultation to explore the need

It is understood that the HKEx is "finding the bottom" to the industry. It is not expected that there will be a market crisis in Hong Kong. The most important thing is to prevent problems before they occur. It is not necessary to implement the relevant mechanism in Hong Kong. However, if the HKEx has any proposals, it will definitely consult the market.

A spokesman for the HKEx said that the firm had initially approached the market to discuss various measures to enhance the microstructure of the Hong Kong market. It hoped that the Hong Kong market would be more competitive, cheaper and easier to participate in the world, and then improve. Overall market liquidity. The promotion of market micro-structure measures is also the focus of the company's latest three-year strategic plan. Asked whether it includes a preliminary discussion on the feasibility of the "fuse mechanism". The spokesman will not comment.

  If the trigger ends all transactions

According to the source, the HKEx is currently consulting the industry on “informal” measures to improve market efficiency, including whether it is necessary to adopt a “fuse mechanism” as in other major markets, that is, when the HSI falls below a certain level. At the level, the trading activities of the entire market are suspended, including spot and futures.

At present, the HKEx only implements the Market Regulation Mechanism (VCM) applicable to individual shares. That is, the HSI and HSCEI constituents will rise or fall by 10% within 5 minutes, and they will have to enter a 5-minute "cooling-off period". It is reported that the HKEx is exploring whether there is a need to expand to cover the entire market to prevent systemic risks and give the market more time to calm down.

At present, among the major markets in the Asia-Pacific region, Hong Kong and Australia do not have a "fuse mechanism". If other major markets "stop the market" under extreme fluctuations, only Hong Kong will continue to "open the market" and it is likely to become a "great snack".

In addition, the data show that the US “fuse mechanism” is a three-tier system. When the S&P 500 index falls 7% and 13% from the previous trading day, the securities market will be suspended for 15 minutes. When the 20% decline, the day trading will be more To stop. The Mainland also launched the "fuse mechanism" in January 2016. Based on the CSI 300 Index, if the price rises and falls by more than 5% and 7%, the trading will be suspended for 15 minutes or the whole day will be closed, but the implementation will be short for 4 days. already cancelled.

In fact, the International Organization of Securities Commissions (IOSCO) proposed in March last year that financial markets were extremely volatile, including some unusual fluctuations. It is recommended that exchanges should establish mechanisms to manage extreme fluctuations. The association also pointed out that although many exchanges have introduced relevant measures, the measures must be regularly evaluated and fine-tuned to reflect changes in the market.

  The securities industry: should prevent problems before they happen

The securities industry believes that if Hong Kong follows the US approach, when the main index falls by 20%, it will be closed. "The HSI will drop nearly 6,000 points a day. The chances of this happening are very small!" Set a mechanism to "prevent problems before they happen." "There is no relevant mechanism at present. If a unified mechanism or a procedure is set up, when the Hang Seng Index falls a few times, it will have to suspend trading for a few times, which is better than handling the incident first!"

However, some industries believe that the market suspension will cause great market disruption, such as the failure of brokers to "shang up" and so on. Since the "fuse mechanism" has far-reaching impact on the market, I hope that the HKEx will provide more details for discussion.

  Hong Kong Stock Exchange(00388) In addition to the preliminary consultation on the "Hong Kong version of the fuse mechanism", the feasibility of extending the scope of the applicable shares of the market transfer mechanism (commonly known as the cooling-off period) to other mid-cap stocks is being explored, and further research is being conducted to determine the closing price of the market. The range of shares during the period has expanded.

The Hong Kong Stock Exchange launched the "cooling-off period" of the securities market in August 2016, when only 81 were involved.Hang Seng IndexandState-owned enterprise indexComponent stocks. The “cooling-off period” of the derivative market was launched in January 2017. When the price of the eight index futures contracts of the HSI and the H-Share Index rose by 5% within five minutes, it would enter a “cooling-off period”. However, according to HKEx data, the market adjustment mechanism of the securities and derivatives markets has not triggered a "cooling-off period" record.

In addition, the HKEx re-launched the closing bidding period in July 2016 (commonly known as the U disk period) and launched the second phase in July 2017, when it joined about 150Hang Seng Integrated Small Cap IndexThe constituent stocks increased the number of shares to approximately 680 during the auction period.

The closing bid period has been working well so far. The news indicates that the HKEx intends to expand the shares applicable during this period. In principle, it is hoped to cover all stocks. In fact, the original idea of ​​the HKEx was to extend the coverage to all stocks and funds in the second stage, but later decided to join onlyHang Seng Integrated Small Cap IndexComponent stocks. The industry is worried that if the closing time of the auction is extended to all the shares, "one of the stocks will be highly concentrated, and the stock will be sold out, and the market will be shocked!"

At present, the pre-opening session has been in operation for many years. The HKEx has previously pointed out that certain elements of the closing bid will also be applied to the pre-opening period. It is understood that the current price of the upper and lower limit of the auction period is 5%, which should not be used in the pre-opening period. Because the market news of the previous night needs to be reflected before the market opens, a larger volatility is required. The HKEx is initially consulting the industry to set a 15% opinion on the volatility.

(Article source: Zhitong Finance Network)

                (Editor: DF010)

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