- 5 - Purposes & Benefits Allow Exchange Participants to start order input during the Pre-opening Session and improve their operational efficiency Reduce the loading of the system arising from the large number of order inputs and trade execution messages at the commencement of morning session Prevent significant price fluctuations and possible manipulation at the commencement of Continuous Trading Session
- 6 - Purposes & Benefits ……Contd Establish an optimized opening price Maximize the quantity of order matching Allow Exchange Participants to report pre-open trades
- 7 - Main Features Trading Mechanism: –Order matching by Single Price Auction only (no market making and continuous automatching) –Reporting of pre-open trades 2 new order types –At-auction Order –At-auction Limit Order
- 8 - Main Features …...Contd Pre-opening Session will apply to all markets, all securities and all trading facilities from 9:30 a.m. to 10:00 a.m. It comprises four different periods as follows: –Order Input Period9:30 a.m. to 9:45 a.m. –Pre-order Matching Period9:45 a.m. to 9:50 a.m. –Order Matching Period9:50 a.m. to 9:58 a.m. –Blocking Period9:58 a.m. to 10:00 a.m.
- 9 - Main Features …...Contd Order Input Period (9:30 a.m. to 9:45 a.m.) Input of at-auction orders (without a specified price) and at-auction limit orders (with a specified price) only Orders may be modified or cancelled Both Indicative Equilibrium Price (IEP) and Indicative Equilibrium Volume (IEV) will be calculated and displayed continually IEP is the price at which the maximum number of shares can be traded if matching occurs at that time
- 10 - Order Input Period (9:30 a.m. to 9:45 a.m.) …...Contd IEV is the number of shares that would be traded at the IEP The nominal price equals to IEP (if available) or the previous closing price (if IEP is not available) Orders subject to the same validation as Continuous Trading Session, except 8-spread quotation rule is waived Short selling orders not accepted Input of pre-open trades allowed
- 11 - Main Features …...Contd Pre-order Matching Period (9:45 a.m. to 9:50 a.m.) Same as Order Input Period except: –input of at-auction order only –all orders cannot be modified or cancelled Avoid significant change in the IEP by removing orders just before the commencement of the Order Matching Period Provide a mechanism to adjust the IEP to a fair market price while attracting more order (i.e. at-auction orders) in this period
- 12 - Main Features …...Contd Order Matching Period (9:50 a.m. to 9:58 a.m.) no input, modification and cancellation of orders orders will be matched in order type (at-auction order first), price and time priority at the final IEP in this period details of concluded trades will be disseminated to relevant Exchange Participants and the aggregate total will be disseminated as one single trade with trade type U to the market immediately
- 13 - Order Matching Period (9:50 a.m. to 9:58 a.m.) …...Contd cancellation of at-auction orders and conversion of at- auction limit orders to limit orders which will be carried forward to Continuous Trading Session no input of pre-open trades
- 14 - Main Features …...Contd Blocking Period (9:58 a.m. to 10:00 a.m.) a break between the Pre-opening Session and the Continuous Trading Session no input / modification / cancellation of orders and pre- open trades
- 15 - Trading Operations (1) Input operations of new order types At-auction Orders Input of at-auction orders is permitted during Order Input Period and Pre-order Matching Period but Modification / Cancellation of at-auction orders is only permitted during Order Input Period At-auction orders enjoy a higher auction matching priority than at-auction limit orders Unfilled at-auction orders will be cancelled automatically
- 16 - At-auction Orders …...Contd Press PRE/SP + BUY ORD or SELL ORD (same as Enhanced Limit Order and Special Limit Order) Enter the order details (e.g. stock code, quantity,etc) Order type : At-auction Order = A No order price is associated with at-auction orders, i.e. at- auction orders will be matched at the final IEP
- 17 - (1) Input operations of new order types …...Contd At-auction Limit Orders At-auction limit order is a buy order or sell order with a specified price Input, modification and cancellation of at-auction limit orders are only permitted during Order Input Period Unfilled at-auction limit orders, with input price not deviating 9 times or more from the prevailing nominal price, will be converted to limit orders at the input price and carried forward to the Continuous Trading Session of the same day
- 18 - At-auction Limit Orders …...Contd Press PRE/SP + BUY ORD or SELL ORD (same as Enhanced Limit Order and Special Limit Order) Enter the order details (e.g. stock code, price, quantity,etc) Order type : At-auction Limit Order = I
- 19 - (2) Display of information At-auction order/at-auction limit order at-auction orders and at-auction limit orders with prices at or better than IEP will be grouped under the IEP queue at-auction orders will not be displayed if there is no IEP IEP / IEV calculated and displayed throughout the Order Input Period and the Pre-order Matching Period
- 20 - (2) Display of information …...Contd Market state Order type and order price will not be displayed
- 21 - (3) Examples of Pre-opening Session Example 1 Order Input The table below shows all orders in the order book at the commencement of Order Matching Period, sorted in the sequence of matching priority
- 22 - Example 1 ……Contd Determination of IEP In general, the IEP shall be one of the bid prices or ask prices which falls at or within the range of the Highest Bid Price and the Lowest Ask Price and results in maximum matched shares Therefore, the IEP is determined to be $32.00
- 23 - Example 1 ……Contd Order Matching The following trades are generated:
- 24 - Example 1 ……Contd Orders Carried Forward to Continuous Trading Session The following unfilled at-auction limit orders would be carried forward to the Continuous Trading Session:
- 25 - Example 2 During Order Input Period (9:30 - 9:45 am) Assuming that the following orders are entered during the Order Input Period:
- 26 - Example 2 ……Contd The IEP is calculated to be $64 and the cumulative available quantities at the bid and ask sides at $64 are 6,000 and 5,000 shares respectively.
- 27 - Example 2 ……Contd During Pre-order Matching Period (9:45 - 9:50 am) A broker, who wants to match the surplus at IEP or is of the view that the IEP is on the high side can enter an ask at- auction order of 1,000 shares or more. Assuming Broker H enters an ask at-auction order of 5,000 shares during the Pre-order Matching Period and the order book is as follow:
- 28 - Example 2 ……Contd The IEP is now changed from $64 to $63.75 but the number of tradable shares is increased from 5,000 to 7,000.
- 29 - Example 2 ……Contd If another broker I is of the view that the IEP is low and enters a bid at-auction order of 10,000 shares. The order book is as follow:
- 30 - Example 2 ……Contd The IEP is changed from $63.75 to $64.25 and the number of tradable shares is further increased to 11,000. Since only at-auction order can be entered and no modification or cancellation of orders is allowed during the Pre-order Matching Period, it can avoid significant change in the IEP.
- 31 - CONTINGENCY ARRANGEMENT Typhoon and Rainstorm If Typhoon Signal No. 8 or above hoisted or Black Rainstorm Warning issued and not lowered/discontinued at or before 7:30 a.m., no Pre-opening Session will be commenced for that day The time for commencement of Continuous Trading Session (if any) will follow the current practice
- 32 - Typhoon and Rainstorm......Contd If Typhoon Signal No. 8 or above hoisted during the Pre- opening Session, the Pre-opening Session will continue until it ends. There will be no Morning Session and Extended Morning Session The commencement of the Afternoon Session will follow the current practice If Black Rainstorm Warning issued during the Pre-opening Session, trading will continue
- 33 - CONTINGENCY ARRANGEMENT …...Contd Emergency - Market Close If market closes (eg. due to system failure) during the Order Input Period or the Pre-order Matching Period, all at-auction and at-auction limit orders will be cancelled. Trading will resume with the Continuous Trading Session directly on the same day. If market closes during the Order Matching Period and trading can be resumed on the same day, the Order Matching Period will continue at the time of restart.
- 35 - Purposes & Benefits Provide an additional order data packet design to contain a basket of orders in one single order message Facilitate execution of multiple orders for index basket trading, including index arbitrage
- 36 - Main Features Index Basket Order can only be input to the trading system through Broker Supplied System (BSS) during the Continuous Trading Session Only apply to the constituent stocks of Hang Seng Index (HSI) at initial stage (may consider to cover other tradable indices later) Each Index Basket Order will be submitted to the system at a rate of one basket order per second (same as current throttle rate for single order)
- 37 - Main Features …...Contd Upon submission to AMS/3 host, the basket order will be split into normal special limit order which have the following features: –matching priority in time sequence only; –orders will not be rejected due to price changes during a fast market; –unfilled orders will be cancelled immediately; and –brokers do not need to manage a large number of orders requiring price modification or cancellation in the case of sudden changes in market conditions.
- 38 - Criteria for Index Basket Order Each basket order shall meet the following criteria: –Each basket order must only comprise special limit order –Each basket order must contain at least 18 constituent stocks of the HSI –Each basket order has to track at least 90% of the market capitalisation of the HSI –The weighting of each stock in a basket order must not deviate from its index weighting by more than 20% –Each basket order must be one-sided (i.e either buy orders or sell orders) Non-compliance with any of the aforesaid criteria may result in suspension of input of Index Basket Order
- 39 - Criteria for Index Basket Order …...Contd An Illustration
- 40 - Market Rehearsal and Implementation 2 market rehearsals will be conducted in March 2002 Subject to the results, the Pre-opening Session and Index Basket Order Trading Mechanism will be implemented as soon as the market is ready
- 44 - IEP Calculation …... Contd Rule 1 - IEP must be a price at or between Highest Limit Bid and Lowest Limit Ask The IEP must be one of the bid prices or ask prices which falls at or within the range of the Highest Bid Price and the Lowest Ask Price, i.e. $205, $203, $202 and $201. * Go to Rule 2 if more than 1 price fulfil Rule 1
- 45 - IEP Calculation …... Contd Rule 2 - Pick the Price with Maximized Matched Shares The IEP will be either $203 or $205 in which the quantity of matched shares is maximized: PriceMatched Shares $201-2,000 shares $202-2,000 shares $203-2,500 shares $205-2,500 shares * Go to Rule 3 if more than 1 price fulfil Rule 2
- 46 - IEP Calculation …... Contd Rule 3 - Pick the Price with Lowest Normal Order Imbalance The IEP will be either $203 or $205 in which the normal order imbalance is the lowest: *If more than 1 price fulfil Rule 3: -Go to Rule 4 when there is previous closing price; or -Go to Rule 6 when there is no previous closing price.
- 47 - IEP Calculation …... Contd Rule 4 - Pick the Price which is closest to the previous closing price Suppose the Previous Closing Price is $204. $203 and $205 are of equadistant from the previous closing price * Go to Rule 5 if more than 1 price fulfil Rule 4.
- 48 - IEP Calculation …... Contd Rule 5 - Pick the Higher Price Select the higher price. The IEP will be $205. *IEP can be calculated up to this rule with previous closing price.
- 49 - IEP Calculation …... Contd Rule 6 - Pick the Highest Price (only applicable if no previous closing price) Select the highest price. The IEP will be $205. *Consider this rule only when there is no previous closing price and more than 1 price fulfil Rule 3.