HKEx receives approval to introduce after-hours futures trading
15 February 2013
News, Asia, Global, Hong Kong
By Toby Garrod
Hong Kong Exchanges and Clearing Limited (HKEx) announced Thursday (February 14) that it has received regulatory approval for rule changes that will enable it to offer after-hours futures trading (AHFT), which it plans to introduce on April 8.
The move comes despite protests from smaller brokers that they would have difficulty competing with their larger peers in terms of staying open and managing risk through the new trading hours. Such concerns were ultimately acknowledged by the local legislative council, but stalled in the face of wisespread support for the change. Many market players note that it is common practice for major exchanges to offer after hours futures trading, and only fitting that the world’s largest exchange company by market value also competes here.
With the approval, Hang Seng Index and H-shares Index futures will be available for trading from 5pm to 11pm (after-hours trading) in addition to the regular trading sessions: 9:15am to 12 noon and 1pm to 4:15pm. Gold futures will be considered for inclusion in AHFT at a later stage.
HKEx will arrange briefing sessions for its participants in early March to explain the trading, clearing and risk management arrangements for AHFT. Participants interested in joining AHFT must complete all related system tests required by HKEx.
HKEx decided to offer AHFT for the following strategic and business reasons:
AHFT will enable market participants to hedge or adjust their positions in response to market news and events during the European and US business days;
With Hong Kong becoming an offshore renminbi (RMB) centre, AHFT will enable HKEx to cater to international interest in RMB products in the future;
AHFT is a prerequisite for HKEx to move into asset classes traded on a global basis, including foreign exchange; and
Over time, AHFT can help attract more European and US investors to HKEx’s derivatives market.
HKEx will monitor the development of AHFT and review the trading and clearing operations and risk management arrangements for AHFT six months after the implementation.
According to a HKEx consultation paper, published in May 2011, the approval fits neatly with developments that have already taken place in the Hong Kong futures market.
“Many futures brokers in Hong Kong are already open for business after the regular trading hours to offer European and US derivatives trading for their clients, with at least 91 out of a total of 183 HKEx Futures exchange participants (EPs) (as of 11 April 2011) involved in after-hours overseas derivatives trading business (these EPs accounting for 89% of Hang Seng Index futures turnover or 94% of H-shares Index futures turnover in 2010),” says the paper. “These brokers would be well positioned to participate in the proposed after-hours trading session for the Hong Kong futures market. The availability of night trading services offered by brokers indicates that investors have trading demand during the night time.”
Key Arrangements for AHFT
Trade registration and clearing & settlement
Trades will be registered as AHFT trades and cleared and settled on the following trading day.
Price limit up/down mechanism
Sell orders with a price below 95% of the last traded price for the spot month contract in the regular trading session (9:15am to 12 noon and 1pm to 4:15pm) and buy orders with a price above 105% will not be allowed.
Appropriate market monitoring will be put in place during the AHFT session. There will be no intra-day variation adjustments or margin calls during the AHFT session. A mandatory variation adjustment and a margin call will be made following the opening of the regular trading session on the next trading day based on that day’s Calculated Opening Prices, with mark-to-market losses and margin to be collected by 12:00 noon.
If it is a Hong Kong public holiday, there is half-day trading in the HKEx securities market or it is a bank holiday in both the UK and US, there will be no AHFT.
Typhoon and Black Rainstorm Warnings
If a Typhoon Signal 8 or above or a Black Rainstorm Warning is in effect after 12 noon, there will be no AHFT.
Block trade facilities will not be available in AHFT.
More News >
Discuss: HKEx receives approval to introduce after-hours futures trading