HKEX announces launch date for VCM in derivatives market

Hong Kong Exchanges and Clearing Limited (HKEX) just announced it will implement the Volatility Control Mechanism (VCM) in its derivatives market on 16 January 2017.

The rollout was deferred on 13 November 2016 when a technical issue was identified during the final preparation. All necessary analysis and follow-up to resolve the technical issue have been completed.

HKEX’s VCM is designed to prevent extreme price volatility arising from trading incidents (such as a “Flash Crash” or bad algorithms) and is being implemented after extensive consultation with market participants. The VCM in HKEX’s securities market was introduced on 22 August 2016.

How HKEX’s VCM for its derivatives market works:

  • Applies only to the spot month and next calendar month contracts in the Hang Seng Index (HSI), Mini-HSI, H-shares Index (HHI) and Mini-HHI futures markets (eight contract months in total);
  • If there is an attempt to trade a relevant futures contract at a price more than 5 per cent away from its last traded price 5 minutes ago, it will trigger a cooling-off period for 5 minutes where trading of the futures contract can still continue but within a band;
  • There can be no more than one cooling-off period triggered per futures contract in a single trading session (morning and afternoon trading sessions are considered as two separate sessions);
  • Does not apply to the first 15 minutes of the morning and afternoon sessions, the last 15 minutes of the afternoon session and After-Hours Futures Trading.

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