Hong Kong Exchanges and Clearing Limited (HKEx) provided additional information on its planned After-hours Futures Trading (AHFT) to the Legislative Council’s Panel on Financial Affairs (Legco's PFA) today (Monday) during a panel meeting. HKEx’s Head of Global Clearing Gerald Greiner, Co-head of Equities, Fixed Income and Currency Calvin Tai and Co-head of Clearing Risk Management Felix Wang represented HKEx at the meeting.
Below are key points from the information HKEx prepared for today's meeting.
HKEx's consultation process and communications with stakeholders
- Between October 2010 and February 2011, HKEx conducted informal consultation with over 130 Exchange Participants on the demand and possible models for AHFT.
- HKEx conducted a public consultation in May to July 2011 on a consultation paper in which key operational and risk factors were outlined.
- HKEx's public consultation found a large majority of the market supports AHFT and HKEx published its consultation conclusions in December 2011.
- HKEx attended a meeting of Legco's PFA on 10 July 2012 to explain its AHFT plan and discuss AHFT with panel members.
- HKEx updated Legco's PFA today on its preparation for implementing AHFT.
Why AHFT is important to Hong Kong
- Investors will benefit by being able to hedge or adjust their positions in response to market-related developments during Europe’s business day.
- People who work in Hong Kong’s financial services industry or want to work in the industry will benefit from increased job opportunities, and the industry as a whole will benefit from increased business opportunities.
- Hong Kong will benefit because its financial services sector will be even more competitive. In fact, the city’s competitiveness will increase in two ways. First, Hong Kong will enjoy the benefits of AHFT for the initial products. Secondly, it we will gain essential infrastructure to offer global asset classes, such as RMB, interest rates and commodities, in an additional trading session.
Risk management
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It is important to note Hong Kong is an international financial centre so it is exposed to potential risk beyond its regular trading day now and has been for many years. HKEx is aware of that and has adopted measures such as risk-based margining methodology to address it.
- HKEx’s existing margining methodology, which has proven its effectiveness during periods such as the sub-prime mortgage and euro debt crises, will provide a firm foundation for HKEx’s AHFT risk management. Moreover, there are more than 80 Futures Exchange Participants (FEPs) with night trading desks so the industry has a lot of experience managing risk after HKEx’s morning and afternoon trading sessions.
- To address concerns about any unusual volatility in the AHFT session, HKEx has opted for an additional risk management measure in the form of a price limit of 5 per cent.
Market readiness
- More than 120 FEPs have informed HKEx they are ready for AHFT since HKEx conducted two thorough tests to help them with their preparations.
HKEx plans to introduce AHFT in late March, subject to Securities and Futures Commission (SFC) approval.
HKEx will hold comprehensive briefing sessions on AHFT before it is introduced to ensure HKEx’s Participants are fully aware of all the arrangements.
Attached are Questions and Answers on the key points of HKEx’s AHFT discussions with its Participants.
Questions and Answers on the key points of HKEx’s AHFT discussions with its Participants Regarding Financial Stability and Trading Matters
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1. |
Will AHFT affect Hong Kong’s financial market stability?
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2. |
Will AHFT allow opportunities for big players to manipulate the market?
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3. |
Will low trading liquidity in AHFT result in undue excessive price movement?
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4. |
Will AHFT increase futures market volatility in the opening of the following day’s trading?
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5. |
Will AHFT be used by the big players to affect the opening of the securities market on the following day?
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Regarding the Design of AHFT
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6. |
The proposed +/-5% price limit is too wide to cap excessive price movement during AHFT. Should the proposed price limit start with +/-2.5% in a controlled manner instead?
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7. |
Should HKEx implement AHFT for gold, forex or commodity asset classes, but keep stock index futures untouched, as they might affect the securities market?
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8. |
Should the proposed AHFT session be implemented progressively, for example, close at 6 pm at the start? Then it could be pushed later subject to market demand?
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9. |
Should HKEx launch Mini-Hang Seng Index futures and Mini-H-shares Index futures at the start as retail investors will also need to manage their exposure at night?
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10. |
Why are stock index options excluded in the current plan for AHFT?
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Regarding Risk Management Matters
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11. |
Will brokers have difficulties managing clients’ trading risk during AHFT when normal banking services are not available?
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12. |
Would excessive price movements in AHFT exhaust client margins and could brokers be exposed to the risk of client defaults?
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13. |
Without stock index options mark-to-market prices by the close of AHFT sessions, brokers will not be able to calculate the client risk exposure on a portfolio basis. Will brokers be able to calculate client exposure accurately?
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14. |
What would HKEx do if there were volatile movements in the US or European markets due to extreme events such as a stock market crash or financial crisis?
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Regarding Brokers’ Businesses and Operations
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Will AHFT bring more business to the derivatives market?
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16. |
Will AHFT increase operating costs for small brokers and force them out of business?
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Is HKEx taking away the business of small brokers in favour of large brokers?
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Will AHFT add pressure to the employees of the brokerage industry as they will have to work late into the night?
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19. |
Is AHFT a measure to pave the way for a further extension of trading hours for the cash market? Is there any plan to introduce after-hours trading for the cash market?
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