HKEX to implement VCM and POS enhancements in derivatives market

Hong Kong Exchanges and Clearing Limited (HKEX) will carry out developments to its VCM and POS in the derivatives market from 12th April 2021. As of the previous date, the Volatility Control Mechanism will have the ability to allow numerous triggers per session, while the pre-open allocation pre-opening sessions will feature a random cut-off mechanism.

Launched into the derivatives market in 2017, the current VCM is designed to facilitate the next calendar month and spot month contracts in the Hang Seng Index (HSI) Futures, Mini-Hang Seng Index (MHI) Futures, Hang Seng China Enterprises Index (HHI) Futures and Mini-Hang Seng China Enterprises Index (Mini-HSCEI) Futures.

The current setup means that a five-minute cooling-off period is triggered when the price deviates more than 5% from the previous traded price within the last 5 minutes,  allowing for just one trigger in each trading session. HKEX’s planned enhancements are set to relax this setup by permitting multiple triggers per trading session to improve safeguarding in terms of market integrity.


Additionally, a random cutoff mechanism is set to be introduced to the POS and pre-open allocation session to all relevant products in the derivatives market. This will include both morning and afternoon sessions. These changes will be implemented in order to prevent the chances of gaming strategies occurring when manipulating the Calculated Opening Price at the end of the auction process, as well as to promote order input during earlier stages.

The random cutoff process will be facilitated by shortening the pre-opening session by one minute while simultaneously extending the pre-open allocation session by one minute. The POS currently facilitates the trading of HSI, Mini-HSI, HSCEI and Mini-HSCEI futures contracts, MSCI Taiwan Index related futures contracts and Hang Seng TECH Index futures contracts.

Founded in 2000, Hong Kong Exchanges and Clearing Limited operates a range of equity, commodity, fixed income and currency markets through its wholly-owned subsidiaries, including The Stock Exchange of Hong Kong Limited, Hong Kong Futures Exchange Limited  and London Metal Exchange. Just last week, it announced the appointment of Paul Chow as its Group General Counsel. Chow will provide strategic legal counsel to the HKEX Board and senior management team, heading HKEX’s Legal and Secretarial Services Department and overseeing the Group’s legal function.

HKEX recently announced the appointment of Paul Chow as its Group General Counsel starting on 19 April 2021 and before that of  Alejandro Nicolas Aguzin as Chief Executive, to take effect on 24 May 2021 for a term of three years.

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