Friday, 13 March 2009

Hong Kong Exchange Scraps Closing Auction Following HSBC Trades

Hong Kong’s stock exchange scrapped its end-of-day trading processes following a 24 percent tumble in HSBC Holdings Plc’s shares earlier this week.

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Guanyu said...

Hong Kong Exchange Scraps Closing Auction Following HSBC Trades

By Hanny Wan
13 March 2009

(Bloomberg) - Hong Kong’s stock exchange scrapped its end-of-day trading processes following a 24 percent tumble in HSBC Holdings Plc’s shares earlier this week.

Hong Kong Exchanges & Clearing Ltd., operator of Asia’s third-biggest stock market, suspended the so-called closing auction session from March 23 because of “volatility” concerns expressed by investors, Paul Chow, the bourse’s chief executive officer, said yesterday.

Shares of HSBC, the benchmark Hang Seng Index’s second-largest constituent, fell on March 9 by the most in at least 23 years, prompting a government enquiry into possible stock manipulation.

“The scrapping of the closing auction is disappointing,” said Christian Kielland, managing director of brokerage BTIG Hong Kong Ltd. “This type of knee-jerk and ill-conceived response hurts the market and Hong Kong’s attempt to assert itself as the financial hub of Asia.”

The closing session, used by the exchange since May last year, has attracted criticism from lawmakers and investors who claim it distorts pricing. The session extends trading by 10 minutes from the original 4 p.m. local time close, during which buy and sell orders are matched by an auction trading mechanism.

Four days after the closing auction was introduced, eight stocks moved by more than 10 percent from the last traded price at 4 p.m. Hong Kong Exchanges said at the time the fluctuations were due to a rebalancing of MSCI Barra indexes.

Continuing Review

The city’s Securities and Futures Commission said two days ago it was investigating a last-minute drop in HSBC’s shares on March 9 when the stock fell by more than 10 percent in the closing auction session alone. Chow declined yesterday to comment on the progress of the probe.

Hong Kong Exchanges said March 5 it planned to implement a 2 percent limit on the rise or decline of stock prices in the auctions from June 22. The bourse will “continue to review the system,” Chow told reporters yesterday.

“The auction system was brought in to try and prevent stock manipulation and Monday’s events show that it has been unsuccessful,” said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd., referring to the HSBC trades. “Reverting to the old system makes sense.”