HKEX to implement Volatility Control Mechanism enhancements

Hong Kong Exchanges and Clearing Limited (HKEX) announced it will implement first phase of improvements of the Volatility Control Mechanism (VCM) on 11 May 2020.

HKEX’s VCM is devised to prevent extreme price volatility among individual stocks. It was first launched in the securities markets in August 2016.

The VCM enhancements were proposed in a consultation paper in 2019 followed by a guidance issued by the International Organisation of Securities Commissions. The Commission asked regulated markets to review and adjust their volatility controls to insure they stay relevant.

HKEX’s Head of Markets Wilfred Yiu said:

Wilfred Yiu

The enhancement will further strengthen our stock-level safeguards during extreme price volatility, and reflect changes in international practice and regulatory guidance.

HKEX discovered substantial market support for the proposal for implementing first phase of VCM enhancements, based on the consultation feedback.

The first phase includes:

  • Expansion of VCM stock coverage from constituent stocks of the Hang Seng Index and Hang Seng China Enterprises Index (total volume of stocks at 781) to constituent stocks of Hang Seng Composite LargeCap, MidCap and SmallCap Indexes (nearly 5002 stocks);
  • Tiered structure implementation of triggering thresholds at ±10%, ±15% and ±20% to the last traded price five minutes prior respectively for the constituent stocks of the three Hang Seng Composite Indexes.

Six months of the implementation of the VCM enhancements, the exchange will conduct a review on market operations before putting in the action the second phase, which will allow multiple triggers per stock per trading session.

HKEX also produced a set of market educational materials with educational videos and infographics on the enhancements.

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