HKEx: Reminder On Possible Securities Market Volatility And Exchange Participants' Responsibilities

The Securities and Futures Commission (SFC) and Hong Kong Exchanges and Clearing Limited (HKEx) are committed to maintaining an orderly, fair and transparent market and take a stern view against all forms of market misconduct. One of the measures designed to curb excessive price movements during the Closing Auction Session (CAS) is the introduction of a percentage-based price control mechanism, which was approved by the Board of HKEx on 11 February 2009 . The price control mechanism will be implemented on 22 June 2009 subject to the approval of the necessary rule amendments by the SFC and market readiness. For further details about the implementation please click here.

Before the implementation of the price control mechanism, HKEx is of the view that any order that is input during the CAS at a price significantly away from the nominal price at 4 pm may have the potential to cause disruption to an orderly, fair and transparent market. In light of this, Exchange Participants (EPs) are reminded that under all circumstances,

1.	EPs must comply with the Securities and Futures Ordinance (SFO), the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct) and the Rules of the Exchange;
2.	EPs must act with due skill, care and diligence. In particular, EPs should make all necessary efforts to clarify and ascertain with their clients the reasons and basis upon receiving requests for orders that are significantly away from the prevailing price;
3.	Upon request, EPs are required to furnish specific information to the SFC and HKEx of orders with prices which may have caused excessive price movement or otherwise. Such information will include but not be limited to a client's details, a client's investment objectives and strategy, orders' details, execution methodology and strategy, procedures and internal control measures taken by EPs in dealing with client's orders etc; and
4.	EPs, their Responsible Officers and other persons acting on their behalf may be requested to meet with the SFC and HKEx in person to respond to any questions that the SFC and HKEx have in relation to such orders.

The SFC and HKEx wish to remind EPs and investors of possible increases in trading activities and unusual price movements during the Continuous Trading Session and around the market close during:

(a)	index rebalancing events as follows:

	Hang Seng Indexes	6 March
	FTSE All-World Index Series	20 March
	FTSE/Xinhua China 25 Index	April
	MSCI Standard Index Series	May
	Hang Seng Indexes	June
	FTSE All-World Index Series	June

(b)	quarter ends; and
(c)	major corporate action events (eg rights issue where the closing price before the ex-right day may be used for adjustments to strike prices, contract prices etc of listed and over-the-counter derivative products).

EPs and investors should be mindful of these market events when making investment decisions.

Both the SFC and HKEx have real-time market surveillance programmes to monitor trading activities and price movements of securities and will conduct a thorough investigation if any trading irregularities potentially in breach of the SFO, the Code of Conduct or the Rules of the Exchange are detected. HKEx will always refer cases of unusual market activities or suspected manipulation to the SFC for investigation and potential criminal prosecution.