HKEX Set to Adopt Enhancements to Pre-opening Session

The POS enhancements, finalised in December, involve the adoption of features from the closing auction session, with the aim of improving price discovery and trading liquidity.

HKEX (Hong Kong Exchanges and Clearing) has announced that it will launch a range of enhancements to the pre-opening session (POS) in its securities market, effective Monday (19 October).

The POS is the 30-minute opening auction in Hong Kong’s securities market that helps to determine a fair opening price for each POS security. It works by aggregating buying and selling interests and then executing trades at a single price. The session also helps to absorb the impact from market moving overnight news and events, by facilitating an orderly and smooth price discovery process.

In August 2019, HKEX consulted on enhancements to the POS and volatility control mechanism (VCM) for the Hong Kong securities market. Following the finalisation of the enhancements in December, HKEX implemented the first phase enhancements of the VCM in May this year. The POS enhancements were scheduled to be introduced in October 2020.

The POS enhancements involve the adoption of features from the more-established closing auction session (CAS), with the aim of further improving price discovery and trading liquidity.

The key areas of POS enhancements include:

  • introducing a two-stage price limit to curb excessive price movements during the POS, where the first-stage price limit will be ±15 percent against the security’s POS reference price; and the second stage limit will be set within the lowest ask and highest bid recorded at the end of the order input period – to be applied during the no-cancellation period (9:15 – 9:20) and random matching period (9:20 – 9:22)
  • adjusting securities coverage to align with CAS, covering all equity securities and funds, but exclude structured products, debt securities, equity warrants and rights
  • adding randomised auction matching, to deter possible gaming near the end of the auction process
  • allowing at-auction limit orders throughout the session, to improve liquidity and price discovery and reduce price volatility
  • allowing short-selling orders at prices at least at the previous closing price on eligible securities
  • enhanced market transparency through more market data disclosures.

In addition, HKEX will launch a feature during POS for ETFs and L&I products (leveraged & inverse products) on their listing day, applying a ±15 percent first-stage price limit during the POS, where the pre-IPO NAV per unit will be used as the POS reference price for price validation. No first-stage price limit will be applied to other securities’ first day of trading

“The rollout of the Pre-Opening Session enhancements marks another important milestone as HKEX continues to improve its market microstructure for the benefit of all market participants,” said HKEX Head of Markets Wilfred Yiu. “The enhancement which fully align with international best practices, will help improve price discovery and enhance liquidity.”

Further details on the POS enhancements are available here.

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