Self-Match Prevention (SMP)

Currently, HKEX offers self-match prevention (“SMP”) service to derivatives market (details refer to the link) and it is an optional and free-of charge service.  Should Exchange Participants (“EPs”) enable SMP for specific HKATS Username(s), orders from such HKATS Username(s) will not be matched with other orders within the same HKATS Customer Code. 

An illustration as follows:

Aggressive orders instead of resting orders will be deleted by the system before the point of matching.

Currently, the existing SMP can only delete orders within same HKATS Customer Code, it cannot delete orders across HKATS Customer Code and/ or across Exchange Participants (“EPs”).

The existing SMP model at HKEX, based on HKATS Username (“HKATS Username-based SMP”) (details in link), will remain in service and unchanged in feature (i.e. without the enhanced features) after the introduction of the new SMP model (“ID-based SMP”).

Meanwhile, ID-based SMP is targeted to be provided in derivatives market in Q2 2024 subject to market readiness and regulatory approval.

Key features of ID-based SMP includes:

1. Introduction of SMP ID as identifier for triggering SMP: Under the new SMP model, SMP will be based on an identifier (“SMP ID”) assigned by the Exchange to cancel potential self-matched orders[1]. During continuous trading session, a buy order and a sell order with the same SMP ID will be prevented from executing against each other, and either one side of orders will be cancelled according to the pre-specified cancellation method of the respective SMP ID.

   EPs and/or their clients who apply for the SMP model will be assigned a designated and unique SMP ID by the Exchange upon successful registration.  SMP users can tag their assigned SMP IDs to their own orders to prevent self-matching.  The Exchange will announce the details of SMP registration in due course.

2. Cancel aggressive order (“CA”) and cancel passive order (“CP”) as order cancellation method: Each SMP ID must be specified with either one of the two order cancellation methods.  Upon a potential match between two orders bearing the same SMP ID with a designated cancellation method:
   a) the incoming order will be cancelled if CA is chosen; or 
   b) the resting orders will be cancelled if CP is chosen.
   
   
3. Multi-broker model: This new SMP model would prevent self-matching of orders tagged with the same SMP ID via different EPs.

*[1] including all order types (with the exception of combo/bait order against outright) during continuous trading session (day and after-hours trading session)

Currently under HKATS Username-based SMP, there is only one SMP cancellation method, i.e. cancel aggressive (“CA”). No additional cancellation method will be introduced to HKATS Username-based SMP after the enhancements.

Illustration refers as follows:

For ID-based SMP, there will be two types of cancellation methods, i.e.  cancel aggressive (“CA”) and cancel passive (“CP”) are available to allow market participants (i.e. EP and/or their clients) to choose how orders are handled in the event of a self-match. Upon a potential match between two orders bearing the same SMP ID with a designated cancellation method:

a) the incoming order will be cancelled if CA is chosen; or

b) the resting order will be cancelled if CP is chosen.

Illustration refers as follows:

Either HKATS Username-based SMP or ID-based SMP can be used under the same HKATS Customer Code.  However, both models cannot be enabled at the same time. 

In ID-based SMP, SMP ID is a unique identifier allocated by the Exchange for market participants (i.e. EP and/or their clients) to tag in their orders for using the SMP model.  Each SMP ID must be specified with either one of the cancellation methods during SMP ID application.  The cancellation method is allowed to be changed upon request from market participants of EPs and the Exchange’s approval.

EPs can apply for the use of an SMP ID for its proprietary orders and/or for its clients. For the purpose of the SMP Service, clients shall only include direct client(s) of an EP, and where such client is itself an intermediary, the direct client of such intermediary client.

(Please refer to the Explanatory Notes for more details)

No SMP ID may be applied for use in respect of a client who is an individual (including accounts of individuals and joint accounts of individuals).

SMP ID application for EP itself or its client other than asset management company/fund

Generally, only one SMP ID may be applied for use by an EP for its proprietary orders and only one SMP ID may be applied for each client of an EP, except when there are other independently operated trading unit(s) within the EP or the client for which additional SMP ID(s) may be applied.

SMP ID application for asset management company/fund

In the case of a client which is an asset management company, (i.e. maintains an account with the Primary EP in the name of asset management company), if there is only one SMP ID applied for and approved, the SMP ID can be used for different funds or accounts* managed by the same asset management company.

Alternatively, separate SMP IDs may be applied for use for different funds or accounts^* managed or controlled by fund managers or trading decision makers whose operations are independent from one another. Each fund manager or trading decision maker can use such SMP ID for its managed or controlled funds or accounts^*.

^*Refer to accounts of which trading decision is controlled by the asset management company, e.g. discretionary accounts.

(Please refer to the Explanatory Notes for more details)

EP itself or its client other than asset management company/fund

An SMP ID may be applied for use by an EP for itself or for a client, as the case may be, together with any associates.  Associates of a company means any of its holding companies, subsidiaries, or fellow subsidiaries, or any associated companies of them. Please refer to section 2, 13 and 15 of the Companies Ordinance for the meaning of associated companies, holding companies and subsidiaries respectively.

EP’s client which is an asset management company/fund

In the case of a client which is a fund, i.e. maintain an account with Primary EP in the name of a fund, an SMP ID may be applied for use by the fund, together with other funds or accounts^* managed or controlled by the same fund manager or trading decision maker.

^*Refer to accounts of which trading decision is controlled by the asset management company, e.g. discretionary accounts.

(Please refer to the Explanatory Notes for more details)

Applicants will not be expected to provide supporting documents when submitting their new SMP ID application.  Following an initial assessment, however, the Exchange may request for supplementary information or documentation such as organization structure, control measures relating to the use of the SMP Service and/or evidence to illustrate independence, depending on the individual circumstances of each application.     

On an ongoing basis, the Exchange may also request such documentary evidence when it deems necessary for the purpose of monitoring the proper usage of the SMP Service.

When there is a change to the information provided to the Exchange (e.g. co-use SMP ID with an associate not specified in the “SMP ID Maintenance Form” at the time of application), the Primary EP is required to submit Self-Match Prevention (SMP) ID Information Update Form - Derivatives Market (“SMP ID Information Update Form”) within 30 calendar days of the change.

The SMP Service is an optional service.

EPs and its clients should assess their needs and tailor their use of the SMP Service as per their business models, trading strategies and any other considerations as appropriate. They shall comply with the Rules of the relevant Exchange (i.e. SEHK and HKFE), the SMP requirements prescribed by the Exchange from time to time, and the terms and conditions stipulated in respective SMP forms and take steps to prevent and detect improper trading activities, including spoofing, unusual trading practice or non-compliance with any relevant Rules and Regulations. Order cancellations via the use of the SMP Service will be treated as activities initiated by the relevant EP and/or its clients and the use of the SMP Service cannot be used as a defence of any market misconduct / manipulative behaviour.

In addition, EPs and its clients should note that the approval of the use of SMP ID(s) does not constitute any endorsement of the Exchange on the trading activities related to the orders tagged with the respective SMP ID(s).

In particular, Exchange’s approval of SMP IDs do not constitute any endorsement on trades executed amongst orders tagged with different SMP IDs.  Same as today, EPs and its clients have to assess themselves as to whether their trades are in compliance with the Rules of the Exchange or any laws or regulations including the Securities and Futures Ordinance and the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Yes, the usage of the SMP Service will be monitored.  Usage of the SMP Service for any non-bona fide purpose may constitute a non-compliance of the terms of the SMP Service and may violate the Exchange Rules.  EPs should remind their clients of the same.

EPs should take steps to prevent and detect improper trading activities, including spoofing, and report to the Exchange when unusual trading practices are identified.

The Exchange has the sole discretion in suspending, restricting, or terminating the use of a SMP ID or the SMP Service at any time, by notice in writing to the EP, if there is reasonable cause to suspect or believe that any of the prescribed requirements related to SMP are not properly followed or the SMP ID has been used or involved in any market misconduct or manipulative behaviour, where parties involved in any market misconduct and manipulative behaviour may be subject to legal or regulatory consequences.

Any usage of the SMP Service for improper, unethical, manipulative or non-bona fide purpose, including but not limited to spoofing and/or using the tagging of an SMP ID in an order as a cancellation instruction with an aim to cancel the relevant existing order(s), will be regarded as a misuse of SMP.  

EPs are required to, both initially and on a continuous basis, put in place and/or procure its direct client which is an intermediary to put in place relevant control measures to ensure the proper use of the SMP ID and detect any misuse of the SMP Service, including but not limited to measures to:

• ensure the information provided in each application of EP or its clients is accurate and fulfils the requirements prescribed by the Exchange from time to time;
• ensure an SMP ID is only used as stated in the respective SMP forms provided to the Exchange;
• ensure the use of the SMP Service is in compliance with the SMP requirements as prescribed by the Exchange;
• detect misuse of the SMP Service or market misconduct, e.g. spoofing.

EPs should report to the Exchange by email to msm_smp@hkex.com.hk when it detects any potential misuse of SMP ID.

EPs are required to put in place and/or procure its direct client which is an intermediary to put in place relevant control measures to ensure the proper use of the SMP ID and detect any misuse of the SMP Service.  Please refer to the FAQ “What are the expected control measures for using the SMP Service?” for more details.

For orders and quotes with SMP ID specified: (i) as blank or (ii) with the first character as NULL (\0) or (iii) with the first character as SPACE, they would be treated as NOT using SMP token function by the system and, therefore, are not subject to SMP ID validation.

All products in the derivatives market are available for both SMP models (i.e. HKATS Username-based SMP and ID-based SMP).

Both SMP models (i.e. HKATS Username-based SMP and ID-based SMP) are applicable in continuous trading session including day trading session and after-hours trading session. SMP is not available in pre-market opening period.

Yes. SMP will take priority over the trigger of VCM. 

Upon enhancements, all order types (with the exception of combo/bait order against outright) during continuous trading session (day and after-hours trading session) are subject to SMP in both SMP models (i,e, HKATS Username-based SMP and ID-based SMP).

No, all orders are processed by the matching engine according to the price-time priority. SMP will cancel either side of the orders of a potential self trade according to the selected cancellation method.

Yes. SMP is applicable to any outstanding orders in Continuous Trading Session, as long as the orders are tagged with SMP ID. 

Yes, there will be an order cancellation message sent to the EP with the reject reason.

No, the cancellation reason due to SMP or information related to SMP will not be disseminated to the market.

There will be no impact to order priority for orders with SMP ID. All orders are processed by the matching engine according to the time sequence upon arrival.

SMP ID can be amended / removed after order submission. However, it will be considered as a new order and its original order priority in order book will be lost. 

Further details will be announced in due course.

There is a registration process required to allow the same SMP ID tagged through different EPs. Further details will be announced in due course.