Hong Kong is going to rejoin its developed market peers when it reintroduces a stock-market closing auction after a seven-year gap.

Hong Kong Exchanges & Clearing Ltd. plans to start the system on July 25, it said Friday. Two market rehearsals are planned in May and June. HKEx scrapped its previous auction mechanism in 2009 after HSBC Holdings Plc saw its shares plunge about 10 percent in the final seconds of the day. The new system comprises a 10-minute trading session and was designed after HKEx officials reviewed about a dozen of their global peers.

The city’s $3.9 trillion stock market is the last of 22 global developed nations without a closing auction, a mechanism particularly favored by index-tracking funds because of the stability it can bring to end-of-day prices, which they rely on. Not only do officials at Hong Kong’s market believe they’ve taken the best ideas from countries including the U.K., Germany and Australia, they also claim their new offering will reduce opportunities for manipulation. Hong Kong currently derives closing prices in the last minute of trading, a practice used in Hungary, Bahrain and Colombia.

“One benefit of others doing it before us is that we’ve been able to learn from their experiences and incorporate the best elements,” Roger Lee, head of markets at the exchange, said in an interview.

The new model will limit price moves and allow the market to close randomly in the final two minutes to deter gaming. Restricting order amendments and cancellations will also discourage price manipulation, according to the exchange.

Source:
courtesy of BLOOMBERG

by Eduard Gismatullin

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