The Hong Kong stock exchange has proposed a closing auction and other trading controls to help bring its outdated market structure in line with major exchanges elsewhere and restore the city's lustre as an international financial market.
Hong Kong Exchanges and Clearing Ltd on Friday published a consultation on reintroducing a closing auction and installing new volatility controls, features common in other big global exchanges.
Hong Kong, home to the world's sixth-biggest stock market, is keen to attract more international listings, which have trailed off in recent years and suffered a major blow with the loss of Chinese Internet giant Alibaba's $25 billion listing to New York last year.
The exchange also wants to promote a landmark trading link with Shanghai that began in November but has so far seen limited activity.
"It is unbefitting to Hong Kong as an international financial centre not to have a closing auction," said Roger Lee, the Hong Kong exchange's head of market operations.
The exchange had launched a closing auction in May 2008 but suspended it just 10 months later after it failed to soften the market's end-of-session price swings. During one session, HSBC's shares dived, sparking popular outcry and fears of market manipulation.
Institutional investors and global banks have since campaigned for reintroducing an enhanced version of the closing auction, to bring the market up to international standards, but Hong Kong's powerful local brokers have maintained their strong opposition, claiming it would benefit larger players.
Most of the world's major exchanges use an auction at the end of the trading session to reduce volatility and market manipulation when calculating closing prices. Buy and sell orders are pooled during a five or 10 minute period and then matched at the best available price. In a so-called continuous trading session, by contrast, share orders are matched immediately.
The exchange's Lee said the proposed closing auction, to be introduced in two phases, would differ from the 2008 mechanism and be modelled on the Singapore Exchange's closing session.
The exchange also proposed introducing new volatility controls, known as circuit-breakers, that automatically suspend stocks and listed derivatives from trading if they behave erratically. Circuit-breakers came into vogue following the May 2010 Flash Crash, when the Dow Jones Industrial Average dived nearly 1,000 points in a matter of minutes.
The consultation will last 12 weeks and will close on April 10, the exchange said. It will summarise comments and, subject to market feedback, implement the proposals "as soon as practicable", it added.
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