Hong Kong Exchanges and Clearing Limited (HKEX) today introduced its Closing Auction Session (CAS) for securities following an extensive preparation and and testing period conducted in conjunction with market participants.
HKEX, which recently announced plans to work on revising its stock option position limit (SOPL) model, designed CAS after consultation with market participants and consideration of the diverse needs and concerns of the various segments of the market.
A total of 290 exchange participants took part and 282 stocks were traded in the CAS on its first day with a turnover of $1.1 billion, contributing to a 2.2 per cent of the full day’s turnover.
The closing auction trading mechanism is commonly used in securities markets across the world to allow execution at securities’ closing prices. During a closing auction, market participants may input buy and sell orders with the price that most volume can be traded at forming the closing price. All orders are then executed at that price.
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For CAS securities, the market close is between 4:08 pm and 4:10 pm on a normal trading day whereas for other securities, it is 4:00 pm on a normal trading day.
In parallel, the closing time for the trading of stock index futures and options, currency futures and commodities futures in HKEX’s derivatives market has been extended from 4:15 pm to 4:30 pm on a normal trading day, except on the last trading day of the month.
Two-Stage Price Limit
In order to avoid excessive price movements during the CAS, there is a two-stage price limit, initially at ±5 per cent from the reference price and then between the best bid and best ask.
Roger Lee, HKEX’s Head of Markets, said: “We consulted the market in January of last year and concluded in July of last year to introduce a CAS based on positive market feedback. With the CAS, we can meet market demand for execution at securities’ closing prices, and our approach to the market close is in line with the approaches of other leading exchanges.”