Securities Market Operations

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Aside from the amount of the investment, what other charges are involved when dealing in shares?

For more details of fees apply to each securities(HK) transaction, please refer to here.

There are no charges levied by Hong Kong Securities Clearing Company Limited (HKSCC) on investors who settle with brokers or custodians outside the Central Clearing and Settlement System (CCASS). However, dealers or custodians have to pay HKSCC fees for use of the clearing, settlement, custody and nominee services offered by CCASS. The decision on whether to pass these fees on to investors is at the discretion of the brokers or custodians. For details of the CCASS service fees, please refer to here.

* HKEX publishes information about the exchange rates for Hong Kong dollars against renminbi and US dollars on its website by 11:00am on each trading day for calculation of stamp duty and other trading-related fees, including transaction levy, investor compensation levy (currently exempted) and trading fee, on transactions in the respective currencies in its securities market. Please refer to here for the exchange rate information.

What are the trading hours of the securities market?

Trading in the securities market is conducted on Monday to Friday (except public holidays) at the following times:

Auction Session
Pre-opening Session	9:00 am to 9:30 am

Continuous Trading Session
Morning Session	9:30 am to 12:00 noon
Extended Morning Session	12:00 noon to 1:00 pm
Afternoon Session	1:00 pm to 4:00 pm

Auction Session	4:00 pm to a random closing between 4:08 pm and 4:10 pm
Closing Auction Session	4:00 pm to a random closing between 4:08 pm and 4:10 pm

There is no Extended Morning Session and Afternoon Session on the eves of Christmas, New Year and Lunar New Year.

What is the Pre-opening Session?

The POS is an additional trading session of 30 minutes which takes place before the Morning Trading Session. It allows orders to be entered into the trading system, OTP-C, for a single price auction. It also allows manual transactions concluded before the commencement of the Morning Trading Session to be reported by Exchange Participants.

The POS will consist of an Order Input Period, a No-cancellation Period, a Random Matching Period and a Blocking Period as follows:

Periods	Trading Hours	Duration
Order Input Period	9:00am – 9:15am	15 mins
No-cancellation Period	9:15am – 9:20am	5 mins
Random Matching Period (order matching will start randomly during this period)	9:20am – up to 9:22am	0-2 mins
Blocking Period	After matching – 9:30am	8-10 mins

Order Input Period (9:00am - 9:15am)

In the first period (a 15-minute Order Input Period), at-auction orders and at-auction limit orders within ±15% of the previous closing price can be entered for POS Securities. Orders can also be amended or cancelled during this period.

No-cancellation Period (9:15am - 9:20am)

Starting from the second period (a 5-minute No-cancellation Period), the allowable price limits are tightened, and the prices of new at-auction limit orders that aim to be executed in the POS must be between the highest bid & lowest ask recorded at the end of Order Input Period (i.e. recorded at 9:15am).

In order to build an order book with deeper liquidity after the market opens, passive at-auction limit orders will still be accepted provided that these orders are within ±15% from the previous closing price. However, these passive orders will not be matched during the POS.

Both at-auction orders and at-auction limit orders can be entered during the No-cancellation Period, but no orders can be amended or cancelled.

Random Matching Period (9:20am - up to 9:22am)

In the third period (Random Matching Period which is up to two minutes in length), the order rules from the No-cancellation Period apply, and order matching takes place randomly within the two-minute period. The Random Matching Period will end immediately upon the start of order matching.

Order Matching (at a random time between 9:20am and 9:22am)

At the end of the Random Matching Period, orders for all POS Securities are matched at the final Indicative Equilibrium Price (IEP). Order matching is based on order type (at-auction orders first and then at-auction limit orders), price and then time priority. In cases where the final IEP cannot be established during the POS, no order matching will occur.

Blocking Period (after order matching - 9:30am)

Once order matching is completed, the Blocking Period starts immediately and continues until 9:30am. Orders can no longer be entered, amended or cancelled during the Blocking Period.

What is the Continuous Trading Session?

The continuous trading session covers periods from 9:30 am to 12:00 noon and 1:00 pm to 4:00 pm in each trading day. During the continuous trading session, the trading system will match orders input into the system in price priority based on the order they are received. An order entered into the system at an earlier time must be executed in full before an order at the same price entered at a later time can be executed.

During the continuous trading session, the system accepts Limit Orders, Enhanced Limit Orders and Special Limit Orders only, with an option for an All-or-Nothing Qualifier that confines the order to be either executed immediately in full or rejected, without being written into the central order book.

Further, the order price input into the trading system (i) must not deviate nine times or more from the nominal price, if available, or is one-ninth or less of that price and (ii) must follow the quotation rules unless the restriction is waived. In addition, the maximum order size is 3,000 board lots.

Investors may refer here for details.

What is the Closing Auction Session?

Closing auction, which allows execution at the closing price, is a trading mechanism commonly used in securities markets across the globe. During a closing auction, market participants interested in trading at the closing price may input buy and sell orders. Then their orders interact with each other to form a consensus closing price for each security and orders are executed at that price.

HKEX’s Closing Auction Session (CAS) is designed to meet the diverse trading needs of investors by enabling trade execution at the securities’ closing prices, which is a key investment mandate of some funds such as index trackers.

The CAS lasts for about 8 to 10 minutes and consists of a reference price fixing period, an order input period, a no-cancellation period and a random closing period as follows:

	Full Day Trading	Half Day Trading*
Reference Price Fixing Period	16:00 – 16:01	12:00 – 12:01
Order Input Period	16:01 – 16:06	12:01 – 12:06
No-Cancellation Period	16:06 – 16:08	12:06 – 12:08
Random Closing Period	16:08 – 16:10	12:08 – 12:10

* Eves of Christmas, New Year and Lunar New Year

During the Reference Price Fixing Period, a reference price, which sets the allowable price limit of the CAS (±5 per cent from the reference price), is calculated for each CAS security. The reference price is determined by taking the median of 5 nominal prices in the last minute of the Continuous Trading Session (CTS) and the system will take 5 snapshots on the nominal prices at 15-second interval starting from 15:59:00.

During the Order Input Period, at-auction orders and at-auction limit orders within the ±5 per cent price limit can be entered, amended or cancelled for CAS securities.

During the No Cancellation Period, at-auction orders and at-auction limit orders can be entered. However, the prices of new at-auction limit orders must be between the lowest ask and highest bid recorded at the end of Order Input Period (i.e. recorded at 16:06), and no orders can be amended or cancelled.

During the Random Closing Period, the order rules from the No Cancellation period apply and the market closes randomly within two minutes.

After the random closing period, orders for all CAS securities are matched at the final IEP. In cases where final IEP cannot be established during the CAS, the reference price will be treated as the final IEP for order matching and will become the closing price of the CAS security. Order matching is based on order type, price and then time priority.

Investors may refer to here for details.

On what basis is the closing price calculated?

1. For non-Closing Auction Session (CAS) securities

Under normal operation environment, the closing price of a stock is determined by taking the median of 5 nominal prices in the last minute of the continuous trading session. The system will take up 5 snapshots on the nominal prices at 15-second interval starting from 3:59:00 p.m.

The following example will illustrate the calculation:

Snapshot	Time	Bid Price	Ask Price	Last Recorded Price	Nominal Price#
1st	3:59:00 p.m.	$39.40	$39.45	$39.45	$39.45
2nd	3:59:15 p.m.	$39.40	$39.45	$39.45	$39.45
3rd	3:59:30 p.m.	$39.40	$39.45	$39.40	$39.40
4th	3:59:45 p.m.	$39.35	$39.45	$39.40	$39.40
5th	4:00:00 p.m.	$39.30	$39.35	$39.35	$39.35

The five snapshot nominal prices are arranged in ascending order as follows:

$39.35	$39.40	$39.40	$39.45	$39.45

The median (i.e. the middle one) is $39.40, which will then be taken as the closing price. Choosing the median of five snapshot nominal prices ensures that the closing price will not be biased by one single trade.

# The nominal price is determined by comparing the current bid price, the current ask price and the last recorded price in accordance with Rule 101 of the Rules of the Exchange.

2. For CAS securities

A reference price is first determined using the existing closing price calculation method mentioned above.

The Indicative Equilibrium Price (IEP) at the end of the CAS would be the final IEP, and the final IEP will serve as the closing price of a CAS security. If an IEP cannot be determined at the end of the CAS, the reference price will become the final IEP and therefore the closing price.

There are five types of orders accepted by the Exchange. They are At-auction Order, At-auction Limit Order, Limit Order, Enhanced Limit Order and Special Limit Order. What are their distinctive features?

During the Pre-opening Session and the Closing Auction Session, the trading system of the Exchange accepts only At-auction Order and At-auction Limit Order.

An At-auction Order is an order with no specified price and is entered into the trading system for execution at the final Indicative Equilibrium Price (IEP). It enjoys a higher order matching priority than an at-auction limit order and will be matched in time priority at the final IEP. Any outstanding at-auction orders after the end of the Pre-opening Session will be cancelled before the commencement of the Continuous Trading Session.

An At-auction Limit Order is an order with a specified price. An at-auction limit order with a specified price at or more competitive than the final IEP (in case of buying, the specified price is equal to or higher than the final IEP, or in case of selling, the specified price is equal to or lower than the final IEP) may be matched at the final IEP subject to availability of eligible matching order on the opposite side. An at-auction limit order will be matched in price and time priority at the final IEP. No at-auction limit order will be matched at a price worse than the final IEP. Any outstanding at-auction limit orders at the end of the Pre-opening Session will be carried forward to the Continuous Trading Session and treated as limit orders provided that the specified price of that at-auction limit order does not deviate nine times or more from the nominal price or is one ninth or less of that price. Such orders will be put in the price queue of the input price.

During the Continuous Trading Session, the trading system of the Exchange accepts only Limit Order, Enhanced Limit Order and Special Limit Order.

A Limit Order will allow matching only at the specified price. The sell order input price cannot be made at a price below the best bid price, if available, whereas the buy order input price cannot be made at a price above the best ask price, if available. Any outstanding limit order will join the price queue of the input price.

An Enhanced Limit Order is similar to a Limit Order except that it will allow matching of up to 10 price queues (i.e. the best price queue and up to the 10th queue at nine spreads away) at one time provided that the traded price is not worse than the input price. The sell order input price can be made at a price of nine spreads below the current bid price whereas the buy order input price can be made at a price of nine spreads above the current ask price. Any outstanding enhanced limit order will be treated as a limit order and put in the price queue of the input price.

A Special Limit Order will allow matching of up to 10 price queues (i.e. the best price queue up to the 10th queue at nine spreads away) at one time provided that the traded price is not worse than the input price. A special limit order has no restriction on the input price as long as the order input price is at or below the best bid price for a sell order or at or above the best ask price for a buy order. Any outstanding special limit order will be cancelled.

Investors may refer to here for details.

What are the Exchange’s quotation rules and spread table?

The first bid or ask order entered into the trading system on each trading day is governed by the opening quotations rules. During the Pre-opening Session, the first order shall not in any case deviate nine times or more from the previous closing price (if available) or is one-ninth or less of that price.

During the Continuous Trading Session, the first order (if it is a bid order) must be at a price higher than or equal to the previous closing price minus 24 spreads. The first order (if it is an ask order) must be at a price lower than or equal to the previous closing price plus 24 spreads. The first order (bid or ask) must not in any case deviate nine times or more from the previous closing price or is one-ninth or less of that price. A spread refers to the smallest allowable change in share price.

For details of opening quotations, please refer to Rule 503 of the Rules of the Exchange. The Rules of the Exchange are available here.

Quotations for buy and sell orders other than the opening quotations are governed by another set of quotation rules and a scale of spreads. In particular, a buy order or a sell order must not be made at a price that deviates nine times or more from the nominal price or is one-ninth or less of that price. The spread table is available under the Second Schedule of the Rules of the Exchange. For quotations for buy and sell orders other than opening quotations, please see Rules 505-507A of the Rules of the Exchange.

Quotation rules in general do not apply to at-auction limit orders, except that a buy at-auction limit order or a sell at-auction limit order must not be made at a price that deviates nine times or more from the nominal price or is one-ninth or less of that price.

The spread of security depends on its share price. The following is the spread table for all securities other than debt.

Prices of Securities			Minimum Spread
From	0.01 to	0.25	0.001
Over	0.25 to	0.50	0.005
Over	0.50 to	10.00	0.010
Over	10.00 to	20.00	0.020
Over	20.00 to	100.00	0.050
Over	100.00 to	200.00	0.100
Over	200.00 to	500.00	0.200
Over	500.00 to	1,000.00	0.500
Over	1,000.00 to	2,000.00	1.000
Over	2,000.00 to	5,000.00	2.000
Over	5,000.00 to	9,995.00	5.000

What are the trading parameters for the Orion Trading Platform – Securities Market (OTP-C)?

The trading parameters of OTP-C generally include:

The range for order input price is:
- for limit order, bid (ask) price is within the range of the best ask (bid) and not lower (higher) than 24 spreads of the best bid (ask) price
- for enhanced limit order, ask price is nine spreads lower than the current bid or the bid price nine spreads higher than current ask
- or special limit order has no restriction on the limit price with respect to the best price on the other side of the market

In all circumstance, an order shall not be made at a price that deviates nine times or more from the nominal price, if available, or is one-ninth or less of that price.

the maximum order size is 3,000 board lots per order
no restriction on number of outstanding orders per broker ID
the maximum number of outstanding orders per price queue is 40,000

Non-automatched trades must also be reported to the Stock Exchange and the information of these trades will be disseminated to the market.

Securities are traded in board lots. How many shares are there in one board lot? Are odd lots (less than one board lot) tradable on the Exchange?

The term "board lot" is commonly used in Hong Kong's securities market to refer to a trading unit. Unlike the Mainland markets where the board lot size is 100 shares, the board lot size of a listed security in Hong Kong is determined by the issuer. Investors may check the board lot size of a security here by inputting the stock code or company name in the relevant field.

Securities of less than one trading unit (i.e. one board lot) is commonly known as an odd lot in Hong Kong. Odd lots are not accepted by the Exchange’s trading system for auto-matching, but there is a special lot market in the system for odd lots trading. Exchange Participants (EPs) may post their odd lot orders onto a designated screen on the trading system for matching by other EPs. In general, share prices of odd lots are slightly lower than that of the same security in the board lot market due to their lower liquidity.

Moreover, securities worth less than $0.01 per share (below the lowest price limit in the board lot market) may also be traded in the odd lot market although they are of a quantity equal to one board lot. For example, when the nominal price of a security is at $0.01, the order price in the odd lot market can be as low as $0.001, which is the system’s lowest limit. However, the order price must not deviate nine times or more from the nominal price or is one-ninth or less of that price. Like the board lot market, the Exchange will provide the market via information vendors with real-time information about the odd lot market to enhance market transparency.

What channels are there for investors to place orders? How are orders executed in the trading system of HKEX?

In general, investors can place orders by Internet, phone or in person, subject to the services offered by the securities companies. Investors should check with the securities companies.

After received instructions from clients, the securities company will confirm the instruction with the client and route the order to the trading system of HKEX. The trading system is an order-driven system. Orders are executed in price and time priority. When there is a corresponding order at the same price, they will be matched automatically. Otherwise, the order will join the queue of orders at the same price, moving up as preceding orders are matched.

How can investors amend or cancel their trading instructions? Can a cancellation request be made for orders that became error trades after they were input wrongly by investors or securities companies?

After received instruction from client, the securities company will confirm the instruction with the client and route the order to the trading system of HKEX. If an investor wishes to cancel or amend his instruction, he should contact his broker to check whether his order has been matched.

The trading system of the HKEX securities market is an order-driven system. All orders input into the system are valid and all trades concluded in the system cannot be amended or cancelled unless determined by the Board of the Stock Exchange.

To help dealers prevent error trades, the trading system has been equipped with price warning to alert dealers when prices of orders input by them widely deviate from the market's prevailing prices. The trading system's price warning messages are available to all trading channels such as trader terminals, multi-workstations and broker supplied systems (BSS). However, investors should be aware that if they are trading through Internet, mobile phone or other electronic devices through which their orders are routed to their brokers' BSS, the design of brokers' BSS will determine how they receive the price warning.

How can investors know that their orders have been executed and how can they check their trading records?

HKEX’s securities trading system confirms the closing of each transaction with the concerned Exchange Participant. In Hong Kong, brokers issue a contract note to their clients upon the closing of a transaction or their clients will receive a daily activity statement after the market closes on the day the transaction is completed. When investors use an online trading service, acknowledgement will be issued electronically by their brokers to confirm their trades. A statement of account will also be issued on a monthly basis. Investors should check carefully the information on these statements.

Can investors sell securities bought earlier in the day?

Brokers can arrange for investors to sell their securities bought earlier in the day. This is called a “day trade”. However, some brokers may require confirmation of the shareholdings of investors or need time to obtain the latest information on their shareholdings before agreeing to conduct day trading on their behalf. Investors are advised to consult their brokers on the procedures.

What is short selling? Can investors sell shares not held by them?

The Securities and Futures Ordinance (SFO) forbids the sale of securities one does not own, unless the seller has or has good reason to believe that he has the legal authority to deliver the securities to the buyer at the time of the transaction. Therefore, investors who sell securities they do not own and buy them back on the same day may have breached the Securities and Futures Ordinance even though they do not have to deliver securities for settlement on the settlement day, as they do not own the securities at the time they sell them.

According to the SFO, a short selling is legal if the seller, although he does not own the securities designated for short selling, has borrowed securities from others before short selling them. After selling the securities, the seller will use the securities he has borrowed or securities others have borrowed for him to complete the settlement. A list of designated securities for short selling is available here. Investors should contact their dealers for arrangement details before short selling.

What is T+2? Will investors pay for their securities / receive the proceeds from the sale of their securities on T+2?

Exchange Participants (i.e. brokers) are required to prepare sufficient shares for settling in the Central Clearing and Settlement System (CCASS) before 3:45 p.m. on the second Settlement Day following T-day (the transaction day), or T+2, for all transactions concluded or reported through the Exchange’s trading system on T-day. The related money settlement will also be completed on the same day.

However, investors should note that the T+2 arrangement is only a settlement arrangement between Exchange Participants and the clearing house. All the settlement arrangements, including securities and money settlement, between Exchange Participants and their clients are commercial agreements between them. Therefore, investors should ask their brokers before trading about the settlement arrangements, such as whether immediate payment is required upon a share purchase; or when the proceeds from a share sale can be received.

How do stock codes work in Hong Kong? Will there be any risk indicators?

Stock codes are basically assigned by the Stock Exchange in sequential order. Stock codes of delisted securities may be recycled, but only after they have been set aside for a while to avoid confusion. A list of securities is available here.

Mainland investors should note that unlike the Mainland markets, stock codes are not assigned to listed companies according to their financial conditions, and no risk indicators (eg the ST and PT used on the Mainland) are added to any stock codes.

Investors may refer to results announcements and financial reports of listed companies for their financial conditions. Listed companies are required to post their results announcements and financial reports on the HKEXnews website for the public’s reference. Those announcements/reports also must be posted by the listed companies on their own websites for at least five years.

Moreover, to check whether a listed company has been subject to public criticism or censure by the Exchange, is involved in delisting procedures, investors may visit the HKEXnews website and choose Regulatory Announcement & News under the Headline Category shown on the Advanced Search page in the Listed Company Information section. Investors may also look up the latest information about listed companies which have had trading in their shares suspended for three months or more in Prolonged Suspension Status Report under the Issuer-related Information section on the HKEXnews website.

What is a “stop-loss order”?

The primary function of a stop-loss order is to restrict the loss of investors. When the value of a security drops to a level pre-set by the investor, the investor may sell the security to limit his loss. However, it must be noted that a stop-loss order is merely an investment strategy. The ability of a dealer to execute the order for clients depends on factors such as the demand for the security in the market, the trading price at the time and the trading conditions.

What is “grey market”?

There is no clear definition of a grey market or description of its legal force in the law of Hong Kong or the Rules of the Exchange.

In practice, securities practitioners have attached different meanings to the term. A grey market may refer to undeclared transactions concluded outside the trading system of HKEX, and the trading of new issues prior to their formal trading on HKEX by persons already in possession of or expected to be in possession of the new shares.

Investors should note that the legal enforceability of a grey market trade comes merely from the agreement between the two parties. They are advised to seek legal opinion in advance to understand fully their legal rights and obligations.

What is “insider dealing” and “market manipulation”?

“Insider dealing” and “market manipulation” are prohibited by law.

The definition of insider dealing under the law is quite complicated. Basically, insider dealing normally takes place when a person connected with a listed company, i.e. an insider (e.g. director, staff member or auditor, etc.), possesses privileged information, or a person obtains from another person whom he knows is an insider privileged information of which disclosure would affect the share price of a listed company, and trades, or procures other persons to trade in the securities or derivatives of the company so as to make profits or avoid losses before the public is aware of the information. These persons may have broken the law. They will be prosecuted and given severe punishment.

Market manipulation is the conducting of market activities to interfere with the actual supply and demand of securities or derivatives so as to create a false or misleading appearance of the price or turnover of the securities or derivatives. This can be done by creating a misleading market by driving up, suppressing or stabilising the price of the securities in question.

The parallel civil and criminal regimes under the Securities and Futures Ordinance enable the Securities and Futures Commission (SFC) to combat market misconduct. The Market Misconduct Tribunal (MMT) handles civil cases of all forms of market misconduct including insider dealing, market manipulation and the dissemination of false and misleading information etc. The MMT will decide cases on the civil standard of proof and can impose a range of civil sanctions such as ordering the disgorgement of profits, issuing "cease and desist" and "cold shoulder" orders, and disqualifying a person from directorship of a company. On the other hand, offenders will be prosecuted where there is sufficient evidence for a criminal prosecution. If convicted, offenders of insider dealing may be subject to imprisonment for a period of up to 10 years and a fine of up to $10 million. Furthermore, any SFC licensee found to have taken part in any insider dealing may have their licence suspended or revoked.

What is OTP-C?

OTP-C, Orion Trading Platform – Securities Market, is the securities trading infrastructure developed by the Exchange. It was launched in February 2018. OTP-C aims to offer a scalable, flexible and high performing cash equity trading platform based on open systems technology. New and enhanced business functionalities could be introduced to OTP-C in phases in the future, subject to the needs and priorities of market participants.

The trading system of the Exchange is an order-driven system. During the Pre-opening Session and the Closing Auction Session, the system accepts at-auction and at-auction limit orders only. During the Continuous Trading Session, the system accepts limit, enhanced limit and special limit orders only, with an option for an ‘All-or-Nothing Qualifier’ that confines the order to be either executed immediately in full or rejected, without being written into the central order book.

For more information about OTP-C, please refer here.

Does HKEX have contingency/recovery plans if its securities or derivatives trading system fails?

In the event of trading system or equipment failure, contingency measures are in place to resume trading as soon as possible.

In case of service interruptions caused by fire or major hardware failure at the OTP-C or HKATS primary site, trading will switch to the OTP-C or HKATS backup system at the backup site. Site failover will normally take 45 minutes to 1.5 hours, and reasonable time will be allowed to inform the market before trading resumes.

Will HKEX compensate those who suffer losses due to market system failure?

HKEX has exercised Due Diligence to ensure the normal functioning and operation of its market systems. HKEX has also developed a set of contingency arrangements to cope with system emergencies. According to the Securities and Futures Ordinance, HKEX will not incur liability in respect of anything done or omitted to be done in good faith.