What is DCASS?
DCASS stands for Derivatives Clearing and Settlement System which serves as a single clearing and settlement system for both the HKFE Clearing Corporation Limited (HKCC) and The SEHK Options Clearing House Limited (SEOCH).
DCASS shares the same platform and infrastructure with the derivatives trading system, HKATS. HKATS and DCASS form the integrated trading and clearing system for the derivatives markets of HKEX.
What are the technical requirements for DCASS Online?
Participants can access DCASS via a browser frontend, namely DCASS Online, with SDNet line via Central Gateway connection. The technical requirements for DCASS Online are as below:
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Minimum Requirement
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Processor
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Intel Core i3-550 3.2GHz or higher
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RAM
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8GB
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Storage
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3GB
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Network adapter
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100Mbps full-duplex
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Monitor
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21” with 1280 x 1024 resolution
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Operating System
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Microsoft Windows 10 (64 bit) (English Version)
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Layered software
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Anti-virus software
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Supported Browser
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Google Chrome browser version 124.0.6367.119 (Note 1)
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Network Circuit
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- via SDNet connection
- Firewall/Services Ports configuration, if necessary
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Note 1:
Although Google provides new Chrome browser versions from time to time, Participants are strongly recommended to install the above specified version at their PCs for DCASS Online. HKEX will only base on that specified version for trouble shooting for any DCASS Online related issue. Notwithstanding CPs are still able to connect to DCASS Online using the older version if they are not able to install the above version as scheduled by HKEX. Please note that HKEX’s trouble shooting services may not be a full functional support if CP is using the Chrome browser versions other than the above specified version.
How much is the connection fee for DCASS ?
Connection fee for DCASS Online access via the central gateway
(1 connection consists of 2 DCASS Online Users and 1 DCASS Administration User) |
2,600/month/connection |
Please see the below fee table as reference:
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No. of DCASS Online Users
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No. of DCASS Administration Users
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Monthly connection fee
|
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2
|
1
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HK$ 2,600
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> 2 and ≤ 4
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1 or 2
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HK$ 5,200
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5 or 6
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1 or 2
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HK$ 7,800
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≥ 2 and ≤ 6
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3
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HK$ 7,800
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| Sub-license fee for DCASS OAPI via the central gateway |
2,600/month/connection |
For details, please refer to corresponding Appendix A to HKCC Rules and Appendix G to SEOCH Procedures.
Is there any number of row limitations on different views of DCASS Online?There is limitation on number of rows depending on respective views of DCASS Online. For example, the limitation on “Trade history” view is 60,000 rows; Participants are recommended to tighten the searching “to” and “from” time.
Participants who have high volume of usage on particular function should develop their own OAPI program.
Participants can access DCASS through the DCASS Terminal which is designed to support Participant with low to medium clearing volume as it facilitates manual input of post trade activities. DCASS Terminal is connected through DCASS Server via Participants’ Network Gateways or HKEX’s Central Gateways. |
What is the security measure for Participants to access DCASS?Participants can make use of the DCASS security features to manage passwords and access rights of their DCASS Online users. 2 DCASS Online users with full access to all available functions and 1 DCASS Administrator user will be set up for each Participant. Participants can manage their own user access profiles and reset passwords for their DCASS Online users by the DCASS Administrator user. For details, please refer to chapter 8 of DCASS User Guide.
Participants can connect their back-office system to DCASS using customized OAPI to enable straight-through-processing.
Participants should comply with the following password complexity requirements for their DCASS users:
| Password Requirements |
| Types of DCASS User |
DCASS OAPI User
(i.e. "BO_CXXX8xx"/"BO_CXXX9xx)
|
DCASS Online User
(i.e. "BU_CXXX1xx")
|
DCASS Administrator User
(i.e. "BU_CXXX2xx")
|
| Password length |
should be at least 8 characters and at most 20 characters in length |
should be at least 16 characters and at most 20 characters in length |
| Password complexity |
Password should contain a combination of:
- at least 1 letter;
- at least 1 numeric digit (0-9); and
- at least 1 special character.
The acceptable special characters are:
| ! |
" |
# |
$ |
& |
( |
) |
* |
+ |
, |
| - |
. |
/ |
: |
; |
< |
= |
> |
? |
@ |
| [ |
] |
^ |
_ |
` |
{ |
| |
} |
~ |
|
|
| Password expiry |
Password should be changed at least every 90 days. Users will be forced to change password upon next logon if the password is older than 90 days. |
| Password history |
Password should be different from the previous passwords in the past 365 days. |
| User lockout |
User will be locked upon 6 consecutive unsuccessful logon attempts. |
When can Participants perform post-trade activities like give-up, take-up, trade rectification, etc. via DCASS?Participants can perform post-trade activities
from 7:30 a.m. for HKFE major products and
from 9:30 for stock options.
Clearing service for T Session will be closed at System Input Cutoff Time on each Trading Day, including the expiry day of options and the last trading day of futures. Participants should ensure that they have completed their post-trade activities before the stipulated cutoff time.
Moreover, Participants are strongly encouraged to complete their daily post-trade activities 30 minutes before System Input Cutoff Time. The remaining 30 minutes to System Input Cutoff Time should be treated as the Emergency Buffer for post-trade input.
Post-trade activities for those products which are available for trading in the T+1 Session will be available till T+1 Session Cutoff Time. If the input is performed outside the stipulated time period, an error message "illegal transaction time" will be prompted in the DCASS Online.
For details of the DCASS operation timeline, please refer to chapter 1 of DCASS User Guide.
For respective System Input Cutoff Time, please refer to HKCC Rules section 101 and SEOCH Rules section 101.
For T+1 Session Cutoff Time, please refer to HKCC Rules Appendix B.
What should Participants do if they expect that they could not complete their post-trade activities for T Session before the System Input Cutoff Time?If a Participant expects that it cannot complete the post-trade activities for T Session before the System Input Cutoff Time, he should contact DCASS Hotline at 2979-7222 as soon as possible. Participant should complete and submit the duly authorized on-behalf input request forms to the Clearing Houses before System Input Cutoff Time. The Clearing Houses would perform the input on the Participant's behalf on a best effort basis, depending on the resources available at the time. The Clearing Houses will not accept any on-behalf input request forms submitted after the deadline of System Input Cutoff Time.
For respective System Input Cutoff Time, please refer to HKCC Rules section 101 and SEOCH Rules section 101.
On-behalf input will be subject to a charge as stipulated in the Rules and Procedures of the Clearing Houses. Processing charge for on-behalf input is $50 per transaction with a minimum charge of $500 per day.
What is the transmission schedule of Exercised Options Trades (EOTs) from SEOCH to CCASS resulting from exercise and assignment of stock options?The EOTs will be transmitted to CCASS on the date of exercise and assignment. SEOCH will not include these EOTs in calculation of margin on the date of exercise and assignment. Instead, CCASS will include those EOTs in the Provisional Clearing Statement and in the calculation of Marks, Margin and Concentration Collateral on the date when the EOTs are received from SEOCH. For those SEOCH Participants selected for SEOCH to collect and pay Marks, Margin and Concentration Collateral of EOT pending stock positions, SEOCH will effect a transfer on T+1 day for the amount demanded by HKSCC from the SEOCH Participant’s designated House CCMS Collateral Account to its corresponding HKSCC Participant’s CCMS Collateral Account.
What are the requirements for trade adjustments in respect of Block Trade?For SEOCH Participant, trade adjustments in respect of a Block Trade shall be submitted by SEOCH Participants at any time 30 minutes prior to the System Input Cutoff Time on the same Trading Day or 30 minutes prior to the System Input Cutoff Time on the next Trading Day. For details, please refer to SEOCH Procedures 5.4.5.
For HKCC Participant, for Block Trades executed during the T Session on a Trading Day, trade adjustment request may be submitted at any time 30 minutes prior to the System Input Cutoff Time on the same Trading Day or 30 minutes prior to the System Input Cutoff Time on the next Trading Day. For Block Trades executed during the T+1 Session on a Trading Day, trade adjustment requests may be submitted at any time 30 minutes prior to the T+1 Session Cutoff Time on the same Trading Day or 30 minutes prior to the System Input Cutoff Time on the next Trading Day. For details, please refer to HKCC Procedures section 1.4.1.
For respective System Input Cutoff Time, please refer to the HKCC Rules section 101 and SEOCH Rules section101.
For T+1 Session Cutoff Time, please refer to HKCC Rules Appendix B.
What is the use of DCASS Individual Client Account?Upon the requests of Participants, Clearing Houses may in its absolute discretion establish and maintain one or more Individual Client Accounts for the Participants. The Individual Client Account is for the recording of trades and positions of each individual client of a Participant. Positions are maintained and margined on a NET basis in an Individual Client Account. Participants should ensure that all positions maintained in an Individual Client Account belong to one client only, and such trades and positions are not held by a client operating an Omnibus Account.
What is the use of DCASS Client Offset Claim Account ("COCA")?
Each HKCC Participant will have one COCA. Upon the requests of HKCC Participants, Clearing House may in its absolute discretion establish and maintain more than one COCA for the HKCC Participants. COCA is for the recording of positions of individual clients of an HKCC Participant which are of an offset nature. The offset criteria can be found in HKCC Procedures chapter 2. Positions in each portfolio for offset claim must belong to the same client. Positions in COCA are maintained on a GROSS basis, but margined on a NET basis. HKCC Participants should ensure that all positions maintained in COCA for margin offset can be reconciled with their internal records.
Upon the request of SEOCH Participants, HKEX may in its absolute discretion establish one COCA. Positions in COCA are maintained on a GROSS basis, but margined on a NET basis. SEOCH Participants should ensure that all positions maintained in COCA for margin offset can be reconciled with their internal records. Margin offset through COCA must be claimed in pairs of client positions and only the position pairs fulfilling ALL the following conditions are eligible:
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(i)
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The pair of positions is in the Omnibus Client Account;
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(ii)
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The pair of positions belongs to the same beneficial owner; and
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(iii)
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The positions forming the pair are one short put and one uncovered short call positions sharing the same underlying
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What is the use of DCASS Daily Account?The DCASS Daily Account serves as an intermediary account to which trades can be transferred on a temporary basis for average price trade calculation or other purposes.
Positions recorded in the DCASS Daily Account are maintained on a GROSS basis during the day. Any positions for T Session remained in the DCASS Daily Account after the System Input Cutoff Time will be automatically transferred to the Sink Account of the Participant.
For respective System Input Cutoff Time, please refer to HKCC Rules section 101 and SEOCH Rules section 101.
How can Participants obtain trade detail information?Participants can check real-time trade details via the "Trade History" window. A "Cross Trade" will have the deal source "EMP1br".
If Participants would like to see only the trades of Stock Options market, they can make use of the "Markets" window to filter the trades.
On the other hand, Participants can also refer to the DCASS reports "TP001 Position Details" and "TP003 Position Movement Details". How should Participants do if they have net down positions wrongly?If Participants net down a position wrongly, they CAN reverse or re-open the positions by submitting the Annulment of Position Netting requests via DCASS themselves no later than the System Input Cutoff Time on the 5th Trading Day after the original position netting was effected.
However, if the position has been netted down wrongly by trade adjustment or position transfer, Participants have to complete stipulated request forms (HKCC: Form 23; SEOCH: Form A23) and submit to the Clearing Houses no later than the System Input Cutoff Time on the 5th Trading Day after the original position netting was effected.
Participants please note that partial re-open of positions is not allowed at DCASS. Nonetheless, Participants can submit the annulment request to re-open all positions previously net down. When the annulment request has been approved by Clearing Houses, Participants can then perform the position net down at DCASS accordingly.
For respective System Input Cutoff Time, please refer to HKCC Rules section 101 and SEOCH Rules section 101.
How can Participants perform a trade give-up or take-up in DCASS?
Giving-up Participants can use the "Give Up" window to perform trade give-ups, and to check or reject (if any mistakes are made) their give-up requests via the "Holding Give Up" window. Participants can give up T day trades and T-1 day trades via the DCASS
Online.
Taking-up Participants can use the "Holding Give Up" window to either take up or reject the trade give-up requests via the DCASS Online.
A trade is successfully transferred provided that the give-up party has submitted the give-up successfully and the take-up party has confirmed the take-up successfully. If there are any give-up requests in holding state (i.e. not confirmed the give-up trades) after the System Input Cutoff Time, these requests will be automatically rejected and the relevant trades will remain with the give-up participants in the batch process.
For respective System Input Cutoff Time, please refer to HKCC Rules section 101 and SEOCH Rules section 101.
How can Participants transfer trades out of the "Sink Account"?Any trades remained in the Daily Account "DA" as at the day-end will be automatically transferred to the Sink Account during the DCASS day-end batch process. Participants are required to move out those trades from the Sink Account before the System Input Cutoff Time of the next Trading Day. A Participant can use the "Rectify Trade" function to moves out these trades to other correct account(s) within itself or give-up them to other Participants.
For respective System Input Cutoff Time, please refer to HKCC Rules section 101 and SEOCH Rules section 101.
How to calculate the in-the-money percentage for stock options?The in-the-money percentage for stock options is the difference between the strike and fixing price as a percentage of the strike. For this purpose, the fixing price of the underlying stock will be determined by SEOCH at its absolute discretion and, under normal circumstances, it will be the closing price quoted on The Stock Exchange of Hong Kong Limited of the underlying stock on the expiry day.
Can SEOCH Participants set their own automatic exercise limit?SEOCH Participants can set their own automatic exercise limit, in term of % or fixed value, per weekly and/or monthly stock options call and/or put per account and/or per company. For details, please refer to chapter 4 of DCASS User Guide. Once a SEOCH Participant has setup its own automatic exercise limit in DCASS, such exercise limit will override SEOCH’s prescribed exercise criteria and take effect immediately.
SEOCH Participants should take extra cautious and are reminded to have proper internal control when setting up their own exercise limit in DCASS. SEOCH Participants should review their prescribed exercise limit and make necessary adjustments from time to time.
Can Participants perform Manual Exercise and/or Deny Exercise for all options products in the derivatives market?Manual Exercise and Deny Exercise are ONLY applicable for stock options contracts which are American-styled and physically settled options on equity securities listed on The Stock Exchange of Hong Kong Limited.
SEOCH Participants can input manual exercise requests at DCASS by themselves at any time prior to the System Input Cutoff Time on any Trading Day and expiry day.
On expiry day, SEOCH Participants can also deny exercise requests automatically generated by DCASS for any in-the-money spot month contracts which meet SEOCH’s prescribed exercise criteria. SEOCH Participants can input deny exercise request via DCASS at any time prior to the System Input Cutoff Time. For details, please refer to chapter 4 of DCASS User Guide. For System Input Cutoff Time, please refer to SEOCH Rules section 101.
For other options contracts traded in Hong Kong Futures Exchange Limited, all in-the-money spot month contracts will be exercised by HKCC on expiry day. Manual Exercise and Deny Exercise functions are NOT applicable.
Summary:
| Products |
Manual Exercise
by Participants |
Deny Exercise
by Participants |
Contracts included in the
exercise process performed by
Clearing House |
| Stock options contracts |
Allowed.
On any Trading
Day and Expiry Day
|
Allowed.
Only on Expiry Day
|
Those spot month contracts which meets the exercise criterion, prescribed
(i) by the relevant SEOCH Participant; or
(ii) if no such exercise criterion is prescribed by the SEOCH Participant, by SEOCH
|
| Non stock options contracts |
Not applicable |
Not applicable |
All in-the-money spot month contracts |
When will the settlement fee and exercise/assignment fee be charged?For HKCC, the settlement fee will be charged on any unclosed spot month futures contracts on its last trading day.
For HKCC, the exercise fee will be charged on any exercised options contracts while assignment fee will be charged on any assigned options contracts.
For SEOCH, only exercise fee will be charged on any exercised stock options contracts.
How long will the DCASS reports/data files be available for retrieval?Reports and data files will be available for download within 10 calendar days after report/ data file generation. Participants should retrieve and save the reports and data files daily, to avoid subsequent report re-printing request at a cost. For re-print of reports or retrieval of data files, Participants should submit a request form via Client Connect to HKEX, which is subject to charges.
How can Participants access to Report Retrieval Solution?
Each Participant will be assigned with 2 SFTP user accounts “DCXYZ001” and “DCXYZ002” for retrieval of DCASS and pre-trade risk management reports via Report Retrieval Solution, where CXYZ is the DCASS customer code of the Participant.
The SFTP user accounts are CASE SENSITIVE and they must be input in CAPITAL LETTERS. Participants input user accounts in small letters cannot login Report Retrieval Solution.
If Participants plan to have site relocation which will have IP address changed, Participants are required to inform clearing houses at least 5 business days in advance by submitting Form “TechS 8 - RAP Registration and Maintenance for HKSCC or HKCC / SEOCH or Share Registrar” at Client Connect.
How can Participants check all collateral balances and transaction records?Participants can check the details of all collateral balances and transactions via the on-line functions "Enquire Collateral Account Balance" and "Enquire Collateral Account Movement" respectively. The CCMS day end report "Statement of Collateral Account" (CCMDS01) also contains relevant information. In addition to balances of both cash and non-cash collateral in general, "Contract Currency On-hold" is also shown to reflect the cash amount being held for covering margin liability and therefore is not available for withdrawal.
How money settlement is handled by CCMS and what are "Outstanding Debit Amount" and "Shortfall Amount"?For any item receivable from Participants (e.g. cash deposit, margin, variation adjustment (VA) collection, etc), a Direct Debit Instruction (DDI) will be generated and sent to the relevant Settlement Bank or Designated Bank of the Participant for money settlement.
For any item payable to Participants (e.g. cash withdrawal, VA release, etc), a Direct Credit Instruction (DCI) will be generated and sent to the relevant Settlement Bank of the Clearing House to effect payment to the Participant's bank account.
"Outstanding Debit Amount" and "Margin Shortfall Amount" refer to negative cash amounts generated due to fees/VA and margin obligations respectively.
Can Participants transfer the cash collateral between their Collateral Accounts?Participants can use the CCMS function "Maintain Cash Collateral A/C Transfer" to transfer cash collateral from their House or Market Maker Collateral Accounts to Client Collateral Accounts. However, transfer of cash collateral from the Client Collateral Account to other Collateral Accounts via the on-line CCMS "Collateral A/C Transfer" function is NOT allowed.
Why do different collateralisation batches appear twice for the same account in the "Posting / Collateralisation Result Report" (CCMPY02)?In the event that an intra-day re-calculation of margin requirements and collateralisation are triggered during the day without actual call for payment by the Clearing House for its internal purposes (i.e. no "Posting/Collateralisation Result Report" (CCMPY01) is generated), the collateralisation results will be shown in the subsequent payment report (it may be the next IDM CCMPY01 report or day-end CCMPY02 report).
For this earlier collateralisation batch, an indicator "*" will be shown on the 132nd column in the report, meaning that the extra collateralisation information is not the most up-to-date collateralisation information.
For the last collateralisation batch, i.e. the latest collateralisation batch shown on the CCMPY01/ CCMPY02 report, this indicator will not be shown on the 132nd column. The same indicator will also be shown in CCMPY01 (Daily Intra-day Assessment) report when a participant account is not subject to HKCC Daily Intra-day Risk Assessment VA call during this collateralization.
How much interest will be received by Clearing Participants on the cash margin deposits and when will it be received?Please refer to Appendix V of the Rules and Procedures of HKCC and Appendix I of the Operational Clearing Procedures for Options Trading Exchange Participants of SEOCH for details of how interest, costs and charges are calculated. The interest, costs and charges will be calculated daily and posted or deducted from the relevant CCMS Collateral Account on the first business day of the following month. Clearing Participants can refer to daily CCMS Report “Collateral Parameters Information List” (CCMIR02) for the rebated interest rates and monthly CCMS report “Monthly Interest & Accommodation Fee Report – Detail” (CCMIA02) for any interest, costs and charges posted or deducted.
Example:
HKD Interest Rate
HKD 1-month HIBOR interest rate: 1.98%
HKD interest rate payable to Clearing Participant: (0.5 x 1.98%) - 0.25% = 0.74%
Approved currency, other than HKD, which is not a Negative Interest Rate Currency
Based on prevailing bank saving rates, plus a spread.
Assuming the prevailing bank saving rate and spread is 0.26% and 2% respectively: Interest rate payable to Clearing Participant: 0.26% + 2% = 2.26%
Approved currency, other than HKD, which is a Negative Interest Rate Currency
Assuming cost incurred by the Clearing House for Negative Interest Rate Currency is 0.35%.
Cost charged to Clearing Participant for Negative Interest Rate Currency: 0.35% + 0.25% = 0.60%
How do participants deposit or withdraw cash in approved currency other than settlement currency with the Clearing Houses?Any Participant wishing to deposit or withdraw cash collateral in approved currency other than settlement currency shall notify the Clearing House in writing or by other means acceptable to Clearing House by 11:00 a.m. on any bank business day. Only after the receipt of the relevant currencies has been confirmed by its settlement banks would Clearing House accept the relevant currencies as cover for the margin requirements.
Normally, the value date for the release of surplus in cash collateral in approved currency other than settlement currency will be the next bank business day after the date on which the withdrawal request is accepted, except Japanese Yen where the value date will be the second next bank business day.
The exchange rates for valuation of cash collateral in approved currency other than settlement currency will normally be determined with reference to the rates published on Reuters pages as at 4:00 p.m. of a business day. Participants will be required to reimburse any incidental costs and charges in respect of the delivery of collateral.
What are the accommodation charges on non-cash collateral deposit?The current accommodation charges levied by HKCC and SEOCH are 0.5% per annum on utilized non-cash collateral.
For example, a SEOCH participant utilized a non-cash collateral of amount HKD10,000,000 for one day, the accommodation charge will be HKD10,000,000*0.5%*1/365 = HKD136.99.
When can SEOCH Participants transfer the de-covered stock back to CCASS?De-covered stocks will be held as "To-be-released" balance after de-cover requests are successfully executed. After the confirmation of money settlement in the morning of the next business day, the de-covered stocks will be released from the "To-be-released" balance to the general collateral balance. SEOCH Participants can then transfer those stocks from their CCMS Collateral Accounts back to CCASS under the Collateral Accounts of their respective HKSCC Participants.
How is Reserve Fund contribution collected from / released to Clearing Participants?
Participants will be notified about Reserve Fund contribution / release by checking Clearing Houses' circulars. The details regarding the individual contribution requirement can be found from the report RP008 - HKCC Participant Additional Deposits (for HKCC Participants) or SEOCH Reserve Fund Contribution Notice (for SEOCH Participants) distributed through the DCASS Online.
HKCC/SEOCH Participant's additional contribution to the Reserve Fund is debited from the Participant's House bank account via the direct debit instruction by 4:00 pm on the 1st business day after the distribution of the clearing report (RP008). Any surplus of HKCC/SEOCH Participant's Reserve Fund contribution will be credited to its registered bank account via the direct credit instruction on the same date.
Where can Participants locate their CCMS reports ?
Participants can check the availability of, print, view or download their CCMS reports from the "Report Download" function via CCMS Terminals. Alternatively, Participants can print or download the CCMS reports, under an unattended mode, by logging onto the “Overnight Report Distribution” function via CCMS Terminals after they completed their CCMS operations for the day.
How do Participants update Clearing Houses for change of authorised signatories and contact details?
All request forms submitted by Participants in physical format to the Clearing Houses have to be properly authorized with signatures of appropriate personnel. These request forms which do not bear authorised signatures will not be processed by the Clearing Houses.
Participants should notify the Clearing Houses of any updates of their authorised signatories by submitting the eService Form “AC 11 Change of Authorised Signatories Form” and prescribed supporting documents via Client Connect (https://connect.hkex.com.hk).
Moreover, Participants are required to provide the contact details (including mobile phone number and email) of their staff who are responsible for CCMS / DCASS operations, Margin Call and IT matters. Participants are requested to notify Clearing Houses for any change of contact details by submitting the eService form “AC 13 Change of Company Particulars and Contact Persons Form” via Client Connect (https://connect.hkex.com.hk).
Participants are required to ensure their contact details are up-to-date so that Participants can be reached by Clearing Houses in case of emergencies.
Participants can contact the DCASS Hotline at 2979-7222 for details.
What is the security measure for Participants to access CCMS?
Participants should access CCMS via (i) 2-Factor Authentication (2FA) with regular password and One-Time Password (OTP) generated from the ForgeRock Authenticator App or email; or (ii) Smartcards as the security token using a digital certificate, while smartcard authentication method will be decommissioned on 4 September 2023 (Monday) tentatively.
Furthermore, Participants should appoint their own Delegated Administrators (DAs) to manage the basic security profile of their own CCMS users. DAs can access CCMS's security management functions at https://www.ccass.com/dms. Please refer to the CCMS Terminal User Guide on Client Connect for details.
How to access CCMS with 2FA for first time login?
For first time login, user will have to enter user ID and a OTP received from the user’s registered email, then setup user’s login password. After that, user is required to setup OTP channel (i.e. from mobile application or email) to receive OTP for subsequent login.
How can Participants acquire the PC SPAN software?
Participants can acquire the PC SPAN software directly from the Chicago Mercantile Exchange Inc.
Participants may use other software or develop their own software to calculate their client margin requirements provided that the margin calculated should not be lower than that calculated by using the PC SPAN. Participants are reminded that the minimum margin rates determined by HKEX are for the Participants' financially strongest clients. Participants should set their margin requirements according to each client's individual circumstances.
How many Risk Parameter Files (RPFs) will be generated and distributed via the secure file transfer protocol (SFTP) facility / HKEX website daily?
At least 5 sets of RPFs will be generated and distributed via the SFTP / HKEX website daily. Each file covers all markets cleared by both HKCC and SEOCH.
2 sets of RPFs will be generated around 2 hours after (i) T session close for non-Late Close contracts; (ii) the close of the trading day. Their file names will have the 3rd character equal to 'P'. Please refer to the Change of T session Trading Hours circular for details.
1 set of RPFs will be generated around mid-night of the trading day. Their file names will have the 3rd character equal to 'F'.
2 sets of intra-day RPFs will be available in the HKEX website at around 15 minutes before market open and 13:00. Their file names will have the 3rd character equal to 'I'. In case there is Intra-day Margin call, 1 set of intra-day RPFs will be generated for each IDM call and available in the HKEX website immediately after the IDM Clearing Message is issued.
Each set of RPFs mentioned above will have 1 file. The file is used for calculation of Clearing House margin which has the 2nd character of the file name equal to 'P'.
Participants can refer to the DCASS User Guide on Client Connect for more details of the RPFs.
How do Participants perform client offset claim?
For both HKCC Participants and SEOCH Participants, they can simply transfer the claimed client positions from the Omnibus Client Account to Client Offset Claim Account "COCA" for the client offset purpose. DCASS will calculate the margin of the claimed positions in COCA on a net basis.
For SEOCH, margin offset through COCA must be claimed in pairs of client positions and only the position pairs fulfilling ALL the following conditions are eligible:
- The pair of positions is in the COCA;
- The pair of positions belongs to the same beneficial owner; and
- The positions forming the pair are one short put and one uncovered short call positions sharing the same underlying
For both HKCC Participants and SEOCH Participants, Individual Client Account is also available for the offset purpose. A Participant can simply transfer positions of an individual client from the Omnibus Client Account to a designated Individual Client Account in which the positions will be kept and margined on a net basis.
How do Clearing Houses notify Participants in case of intra-day margin call?
Clearing Houses will send clearing message to alert Participants in case of intra-day margin call. A pop-up window will be displayed on the DCASS online to alert Participants there is new clearing message received. Participants should check clearing messages regularly via the "Clearing Messages Window".
To facilitate Participants to get used to the notification arrangement, Clearing Houses would still make phone alerts in addition to the Clearing Message alert for intra-day margin call.
What is the treatment of Intra-Day and End-of-Day Variation Adjustment in relation to Internal and External Position Transfer?
The transfer price for a position transfer is the closing quotation on the date of transfer day. After an internal and external transfer of position from the transferring Participant Account to the receiving Participant Account:
On the day of the position transfer, the subsequent intra-day and end-of-day Variation Adjustment calculation of the transferring Participant Account will include those of the transferred positions until the commencement of the next business day.
On the day of the position transfer, the subsequent intra-day and end-of-day Variation Adjustment calculation of the receiving Participant Account will exclude those of the transferred positions until the commencement of the next business day.
Apart from initial contribution, when are Clearing Participants required to make additional contribution to Reserve Funds?
In addition to making initial contribution to the Reserve Fund, HKCC and SEOCH may also require each Participant to make variable contributions. HKCC and SEOCH will assess the adequacy of the Reserve Funds on the 1st Trading Day which is also a Business Day of every month to determine whether any variable contribution will be required. Apart from the regular monthly assessments, ad hoc re-calculation of the variable contributions will be made and demanded from time to time if HKCC or SEOCH considers necessary.
What are the special features for standard combination in HKATS?HKATS generates derived order from the price of the outstanding Standard Combination Order and the prevailing market price of each individual leg. In addition, user can enter 'Day', 'Fill-or-Kill (FoK)' and 'Fill-and-Kill (FaK)' order for standard combination series, while Block Trade is not allowed to be executed. As all the combination series expire and rebuilt on a daily basis, no 'Good Till Cancel (GTC)' order is allowed.
What is Standard Combination Order?Standard Combination Order is the simultaneous purchase and/or sale of two different series with the same underlying. Each standard combination series is pre-defined by HKEX as a combination strategy with two legs in HKATS. Traders in HSI Futures market have been using Standard Combination Order in HKATS for calendar spreads (i.e. buy and sell two futures contracts with different expiration date simultaneously) in order to roll their open positions from spot month to the next month since June 2000. The orders have been used actively in futures trading, especially approaching the end of each calendar month.
What is the price reporting mechanism for standard combination trade?Standard combination trades are reported in corresponding legs of the standard combination series. All standard combination trades are reported in HKATS through the Ticker, Company Trades and Clearing Trades windows. Standard combination versus standard combination trades will carry the deal flag, 'STC', while standard combination versus outright trades will be marked as ‘Cbo v. Outr’.
Is there any market maker for standard combination series?There is no market maker for standard combination series and existing market makers have no obligation in responding quote request on standard combination series. On the other hand, the quotation from individual legs will be indirectly reflected on the standard combination order due to generation of derived order(s).
What are the benefits of using the standard combination order?
The benefit of using standard combination order is that it can be placed as a limit order instead of a market order, making each order visible to all HKATS users. Also, the transaction cost is likely to be reduced in terms of the spreads between the limit price and the bid/ask prices.
| The benefit of using standard combination order is that it can be placed as a limit order instead of a market order, making each order visible to all HKATS users. Also, the transaction cost is likely to be reduced in terms of the spreads between the limit price and the bid/ask prices. |
| The benefit of using standard combination order is that it can be placed as a limit order instead of a market order, making each order visible to all HKATS users. Also, the transaction cost is likely to be reduced in terms of the spreads between the limit price and the bid/ask prices. |
When would the Exchange notify broker on the cancellation of invalid Block Trade?Within 30 minutes of the execution of the Block Trade, the Exchange endeavour to notify the Exchange Participants if any criteria (such as permissible price range, minimum volume threshold) have not been met or any special margin is required. If all criteria have been met and the special margin could be settled within the prescribed time, the Block Trade would be novated and guaranteed by the Clearing House without further notice.
What are the differences between the Price Limit Up/Down Mechanism and Trading Halt Mechanism?The Price Limit Up/Down Mechanism applies to Futures Trading in T+1 Session. It would be triggered when the traded price reaches upper/lower price limit or the highest bid (lowest ask) of the buying (selling) queue reaches upper (lower) price limit, etc. When the Price Limit Up/Down Mechanism is reached, a market message would be broadcasted in HKATS. Trades within the price limit would be matched continuously.
THM applies to Options Trading in T+1 Session only. THM would be triggered only when the highest bid in the buying queue reaches the upper price limit or the lowest ask in the selling queue reaches the lower price limit. Once the Trading Halt Mechanism for an equity index option is triggered, trading of the concerned THM Exchange Contract would be suspended immediately for the remaining T+1 Session.
What are the purposes for introducing AHT?
The introduction of AHT would provide trading/hedging opportunities to investors in case there is a big event happening in the European or US market and that the client base and after-hours business would be increased. AHT could reduce the volatility in the next day’s opening as some investors would have hedged or adjusted their positions in the T+1 Session in response to news and events in the European or US time zones.
What will happen to the orders during Trading Halt? The orders of the halted THM Exchange Contract will remain in the order book but will not be matched. EPs may amend or cancel any of their existing orders. The amendment of order during the trading halt is confined to the following:
1. Modify information in Cust and/or Info Fields
2. Change duration of validity
3. Decrease quantity
What are the products available for trading in AHT?MSCI Taiwan (USD) Futures, MSCI Taiwan 25/50 (USD) Futures, Hang Seng Index Futures, Hang Seng China Enterprises Index Futures, Mini-Hang Seng Index Futures, Mini-Hang Seng China Enterprises Index Futures, Hang Seng Index Options, Hang Seng China Enterprises Index Options, Hang Seng Index Futures Options, Hang Seng China Enterprises Index Futures Options, Mini- Hang Seng Index Options ,Mini-Hang Seng China Enterprises Index Options , Weekly Hang Seng Index Options, Weekly Hang Seng China Enterprises Index Options, Hang Seng Index Total Return Index Futures, Hang Seng China Enterprises Index Total Return Index Futures, Hang Seng TECH Index Futures Hang Seng TECH Index Option, Hang Seng TECH Index Futures Options, CNH London Metal Mini Futures, USD London Metal Mini Futures, CNH Gold Futures, USD Gold Futures, CNH Silver Futures, USD Silver Futures, Iron Ore Futures, MSCI Vietnam (USD) Index Futures, MSCI Philippines (USD) Index Futures, MSCI China (USD) Index Futures, MSCI China A 50 Connect (USD) Index Futures, Currency Futures & MSCI Late Close Contracts #are available for trading in AHT.
# https://www.hkex.com.hk/-/media/HKEX-Market/Services/Circulars-and-Notices/Participant-and-Members-Circulars/HKFE/2022/MO_DT_282_22_e.pdf
What would be the trading hours for AHT?
- 2:30 p.m. to 03:00 a.m. (next day) for MTW & TWP Futures
- 5:15 p.m. to 03:00 a.m. (next day) for HSI/HHI/MHI/MCH/HTI Futures and Options, Weekly Options, HSI/HHI/HTI Futures Options, London Metal Mini futures, Iron Ore Futures, Gold Futures, Silver Futures, Total Return Index Futures & MVI, MPS, CHI, MCA Futures
-
7:15 p.m. to 03:00 a.m. (next day) for Currency Futures & Options & MSCI Late Close Contracts.#
# https://www.hkex.com.hk/-/media/HKEX-Market/Services/Circulars-and-Notices/Participant-and-Members-Circulars/HKFE/2022/MO_DT_282_22_e.pdf
What would be the trading arrangement for Block Trade Facility (BTF) in AHT?
The trading arrangement of BTF in AHT is the same as that in the T Session, except that:
- block trade prices for futures will also be subject to the +/-5% price limit in T+1 Session; and
- Special Block Trade Margin (SBTM) will be applied as usual. However, as there is no banking support during T+1 Session, any block trade and/or related trade adjustment will be rejected if there is insufficient collateral in relevant participant’s CCMS Collateral Account to satisfy the SBTM.
Is TMC allowed in AHT?Tailor-Made Combination trades are available in AHT session for Hang Seng Index (HSI) futures and options, H-shares Index (HHI) futures and options, Mini HSI (MHI) futures and options, Mini H-shares Index (MCH) futures and options only.
Why would there be a price limit up/down mechanism for AHT? Would price limit mechanism be introduced in T Session as well?We believe a price limit will provide market stabilizing effect to calm market overreaction in the T+1 Session. Major derivatives exchanges also have similar price limit arrangements in their after-hours index futures trading.
The price limit up/down mechanism is as follows.
a) No sell order of price below 95% and no buy order of price above 105% of the last traded price of the spot month contract in the T Session are allowed in the T+1 Session.
b) Trading (for all contract months) will be allowed only within the price limit range during the T+1 Session.
c) The price limit of 5% (for index futures) and 7% (for currency futures) will be reviewed if necessary.
Trading in T Session would not be subject to this price limit up/down mechanism.
Is it compulsory for EPs to participate the AHT?
It is not compulsory for EPs to participate the AHT as different EPs may have different considerations such as their clients’ trading interest and operational / resources requirements. Whether to participate in AHT is a business decision for each EP to make on its own. We anticipate that for EPs which are currently offering European or U.S. derivatives trading for their clients, AHT will be an opportunity to expand their existing business with limited operational impact.
What should be done for EPs without night desk operations?For EPs currently without night desk operations, they may consider the needs of their clients and the potential business prospect and decide whether they will participate or only provide limited services to their clients in after-hours trading. In any event, EPs should ensure that they observe the SFC’s Code of Conduct when dealing with clients on all matters in relation to the AHT.
What is the impact to those EPs that decide not to participate?
Those EPs should assess the business opportunities in AHT and their services to be provided to their clients during the AHT. If they decide not to participate in AHT, they need to ensure that their clients are aware that they would not accept clients’ orders during and for the T+1 Session. Theymay face pressure from their clients who would like to participate in T+1 Session and they may run a risk in losing these clients too.
What is the clearing arrangement for AHT?
Trades executed in the T+1 Session will be registered as the following Business Day’s trades, together with trades executed in the following Business Day’s T Session. The DCASS services will start at 7:30 a.m. for respective AHT products until System Input Cutoff Time.
Positions are maintained according to clearing dates and separate records are held at all times for T day and T+1 day positions. T day positions will be finalized at System Input Cutoff Time and subject to day-end margin calculation. T+1 day positions will be finalized at T+1 Session Cutoff Time. These T+1 day positions will become T day’s opening positions on the following Business Day, i.e. the T day’s positions are made up of positions created during the T Session on that Business Day plus trades / post-trades executed during the T+1 Session of the previous Business Day.
For trades executed in the T+1 Session, Participants can perform post-trades (i) up to the T+1 Session Cutoff Time; and/or (ii) from 7:30 a.m. on the next Business Day till System Input Cutoff Time. If Participants want to incorporate those trades executed in the previous T+1 Session in the calculation of mandatory intra-day variation adjustment and margin, they should complete the post-trade activities 30 minutes before market open of the corresponding products.
Remarks: For any discrepancies between this FAQ and the HKCC Rules & Operational Procedures, the HKCC Rules & Operational Procedures shall prevail.
What would be the risk management arrangement for AHT?
In the absence of a level of banking support to facilitate intra-day call capability during the T+1 Session similar to that during the T Session, the following additional risk management measures will be implemented to mitigate the counterparty risks associated with AHT.
- Perform monitoring of CPs’ net capital-based position limit (CBPL) based on both the current market prices and positions at regular intervals during the T+1 Session, supplemented by ad-hoc CBPL monitoring. CPs breaching their CBPL will be requested to reduce their exposure to ensure their CBPL compliance. CPs may be disconnected from the HKEX trading system and subject to closing out action by HKEX should they fail to comply with such request or further increase their exposure.
- A mandatory variation adjustment (VA) and margin call to markets (based on the morning Calculated Opening Prices (COP) or market price shortly after the market open if COP is not available) with T+1 Session will be introduced following the market open of each T Session. Unlike the current ad-hoc intra-day call which includes VA only, this mandatory call will include both VA and margin of all positions as of thirty minutes before the relevant market open of the morning trading session. The call will be issued to CPs by 10:00 a.m. and the payment shall be settled by 12:00 noon. The Calculated Opening Price is the equilibrium market price derived from the price discovery period of thirty minutes before the opening of the morning trading session.
- There will be no intra-day variation adjustment or margin call during the T+1 Session.
Would there be any Risk Parameter Files (RPFs) during AHT session for CPs reference?Risk Parameter Files (RPF) are generated for AHT Capital Based Position Limit (CBPL) monitoring and will be made available for download hourly in AHT Session under normal circumstances. Please note that these RPFs are calculated based on latest market prices and are for CPs’ reference only. They may not be equivalent to the RPFs that require actual money settlement.
Is there any kind of order type allowed in AHT_PRE_MKT_session?This should be the same as the normal pre-market session, i.e., no new orders can be entered but instead change (not affecting order priority)/cancel T+1 orders are allowed. Since there is no pre-opening session (auction session) for AHT so no auction order is allowed.
What are the design principles behind the VCM model for Hong Kong?
HKEX’s proposed VCM is specifically designed to safeguard market integrity from extreme price volatility arising from automated trading (“Flash Crash”, bad algorithms, etc.). It also serves to alert the market with a temporary cooling-off period for the participants to reassess their strategies and positions and make investment decisions. It is not a trading halt, does not intend to limit the ups and downs of prices due to fundamental events, and it also does not work the same way as the daily price limit model which sets a specific daily price range for derivatives trading as seen in some markets.
Special care has been taken in VCM design to minimise market interruption. For example, it applies to individual instrument rather than the entire market, it is based on a dynamic rather than a static reference price, the triggering level of ±5% is set up such that it would not be triggered too often, VCM is not applicable in certain periods (the first 15 minutes of the morning and afternoon trading session and the last 20 minutes of the afternoon trading session) and to certain instruments.
How does the VCM model work?
HKEX has adopted a dynamic price limit VCM model, which would trigger a cooling-off period in case of abrupt price volatility is detected at the instrument level.
The following diagram illustrates the case of a VCM trigger on an applicable instrument.
/VCM-Eng.PNG)
- VCM is applicable for the normal trading session excluding the Pre-Market Opening Period and After-Hours Trading session.
- During the normal trading session, the potential trade price of a VCM Exchange Contract will be continuously checked against a dynamic price limit of ±5% based upon the reference price which is the last traded price 5 minutes ago.
- VCM is triggered if a futures contract is ±5% away from the last traded price 5-min ago; A 5-min cooling-off period will start.
- During the cooling-off period, trading is allowed within a pre-defined price band.
- Normal trading with VCM monitoring will resume after cooling-off period.
What instruments are covered under the VCM? VCM covers spot month and next calendar month contracts of the Hang Seng Index (HSI), Mini-Hang Seng Index (MHI), H-shares Index (HHI), Mini H-shares Index (MCH) and Hang Seng TECH Index (HTI) futures markets.
What is the applicable period for VCM monitoring?
VCM monitoring is applicable to continuous trading session (CTS), excluding:
- the first 15 minutes of the morning and afternoon trading session
- the last 20 minutes[1] of the afternoon trading session
*[1] Since a cooling-off period will last for 5 minutes, the monitoring will stop 20 minutes before end of the Afternoon Session
Does HKCC CPs require to settle any HKCC Participant Additional Deposits (HPAD) during H Days? The settlement of HPAD, which is the CPs’ contribution to the Reserve Fund (RF), will not be required on H Days.
After the implementation of holiday trading, should the monthly review fall, or an ad-hoc review be triggered, on an H Day, HKCC will recalculate the RF based on the latest positions and informs all CPs of their recalculated HPAD on the first Trading Day (which is also the Business Day) after H Day(s).
What is the price snapshot for MMC calculation on H Day?Same arrangement as Business Day will be applied on H Day.
For the avoidance of doubt, as there is no trading for NH Products on H Day, the price snapshot of MMC for NH Products will be the daily settlement price on H-1 day.
Will Clearing House increase margin prior to or during a long holiday?Currently, HKCC will increase the margin levels temporarily (i.e. holiday margin) for some major products before public holidays. Same arrangement will continue to apply to the following products after the implementation of holiday trading:
(i) NH products (e.g. HSI and HSCEI products)
(ii) H products which has margin offset with NH products
For other H products which do not have margin offset with any NH products, normal margin will be applied. Nevertheless, HKCC has the discretion to apply holiday margins or increase margins on products which may pose liquidity concerns on H days.
With the implementation of Holiday Trading, we will continue to conduct adhoc margin review for H products on H Days (i.e. the effective day of increased margin rates can fall on H Day).
Nevertheless, for the scheduled monthly margin review, the effective day of new margin rates for all products including H products will remain as the next HK Business Day (i.e. not fall on H Day).
H CP is required to settle all margin obligations with the prevailing margin rates (including the adhoc increase in margin) on H Day.
Can CP fulfill CNH margins by USD fully?The current collateral policy for RMB margin requirement will remain the same on Holiday Trading Days, i.e. there is a fixed limit of RMB 1 billion for the RMB margin requirement. Where the Clearing Participant’s (CP’s) margin requirement is on or below the limit, the CP is allowed to fulfill all the RMB margin requirement by any acceptable collateral (such as USD cash) where non-cash collateral could satisfy up to 50% of the margin requirement. Beyond limit, the CP’s margin requirement shall be satisfied by RMB cash. Please refer to the Consultation Paper Appendix 5 paras 14 and 16 (p.27) for reference.
Does CP need to fulfill margin requirement for NH products on H Days?H CPs are required to settle all payment obligations (including obligations for HKD and other currencies) arising on H Days. NH CPs are not be required to fulfill any HKCC payment obligations during H Days, and outstanding payment obligation will be settled the next Business Day after an H Day (H+1 Day).
During HK and US mutual holiday, can clients settle margin call later than the next Trading Day?For the purpose of EP’s assessment under HKFE Rule 617(b) for the criteria of Established client, it is considered acceptable not to treat the outstanding margin call of the client as an unfulfilled margin call as long as the EP could obtain the documentary evidence that (i) there is sufficient funding with the bank to fulfil the margin obligations, (ii) fund transfer instructions have been placed with the bank pending completion due to the abovementioned reason and (iii) the fund transfer in (ii) being completed on the day which H Products open for trading immediately after US banking holidays.
Is HKEX supporting excess withdrawal on H day?HKEX is able to support the withdrawal process (we have such process in place today). However, on holiday, HKEX is capable to process the withdrawal, but the settlement banks are not able to support this on day 1 (due to number of concerns in its banking infrastructure/system and etc). This is under our radar and we are actively working with them.
Is it allowed to settle margin requirements of MSCI products in HKD on H Day?To alleviate the funding pressure on H Days, HKEX revises the 50-50 collateral rule for HKD and USD denominated contracts on H Days. H CPs are allowed to fulfill all their HKD and USD margin requirements by any acceptable collaterals (where non-cash collateral could satisfy up to 50% of the margin requirements) on H Days.
Would HKCC perform default management during H Days?The default management process during an H Days will be similar to the procedures on a Business Day. H Products which are not subject to holiday margin, HKCC will perform default management on HK public holidays. For H Products which are subject to holiday margin, the market risk exposure throughout the H Days will be mitigated by the margin collected beforehand, so there will be sufficient resources for HKCC to perform liquidation after H Days. HKCC retains the flexibility to perform liquidation on H Days.
What is HKATS? Hong Kong Futures Automated Trading System (HKATS) is the electronic trading system for the HKEX derivatives market. Trading is conducted via workstations or Open Application Programming Interfaces (OAPI) located at the premises of Futures Exchange Participants and Stock Options Exchange Participants.
HKATS provides real-time data such as traded price and quantity, day high/low, turnover, price depth and order depth. Users can view real-time price information on a computer screen, click on a bid or ask price and execute an order.
With HKATS, Exchange Participants can provide their clients with full electronic order routing, straight-through trade processing and other value-added services, and also supply detailed information such as the exact time of order placement and execution.
The Hong Kong Futures Exchange began introducing electronic trading in November 1995, when open outcry trading was still the main trading method among international derivatives exchanges. The electronic trading system was subsequently upgraded and was renamed HKATS in April 1999. Since then, there have been a number of upgrades of the HKATS hardware and software.
For more information about HKATS, please refer to "Derivatives Trading Infrastructure" under the "Market Operations" section of the HKEX website.
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.
What kinds of investors are suitable for trading in futures and options? Futures and options are not for all investors given their higher inherent risks than many other products. Investors should consider their tolerance for market volatility and losses, and consult their brokers or qualified financial advisers to see whether futures and options fit their personal needs.
What are the risks to be considered before trading in futures and options?There are a number of risks inherent in futures and options trading. Some major ones are summarised below, but the information is by no means exhaustive. Investors should make sure they understand the nature of a contract and the inherent risks before trading.
i. Futures
The “leverage” effect brings substantial risk
The amount of initial margin is small relative to the value of the futures contract so that transactions are 'leveraged'. This may work against investors as well as for investors as a relatively small market movement will have a proportionately large impact on the funds invested or to be invested. Investors may therefore sustain a total loss of initial margin funds and any additional funds deposited with brokers to maintain their positions. If the market moves against their positions or margin levels are increased, investors may be called upon to pay substantial additional funds on short notice to maintain their position. If they fail to comply with a request for additional funds within the time prescribed, their positions may be liquidated at a loss and they will be liable for any resulting deficit.
Risk-reducing strategies may not be effective
The placing of limit orders or stop-loss orders may not be effective because market conditions may make it impossible to execute such orders. Strategies using combinations of positions, such as 'spread' positions may be as risky as taking simple 'long' or 'short' positions.
ii. Options
Variable degrees of risks
Purchasers and sellers of options should familiarise themselves with the type of options (i.e. put or call) which they contemplate trading and the associated risks. Investors should calculate the extent to which the value of the options must increase for their position to become profitable, taking into account the premium and all transaction costs.
The purchaser of options may offset or exercise the options or allow the options to expire. The exercise of an option results either in a cash settlement or in the purchaser acquiring or delivering the underlying interest. If the purchased options expire worthless, investors will suffer a total loss of their investment which will consist of the options premium plus transaction costs. If investors are contemplating purchasing deep-out-of-the-money options, they should be aware that the chance of such options becoming profitable ordinarily is remote.
Selling options generally entails considerably greater risk than purchasing options. Although the premium received by the seller is fixed, the seller may sustain a loss well in excess of that amount. The seller will be liable for additional margin to maintain the position if the market moves unfavourably against him. The seller will also be exposed to the risk of the purchaser exercising the options and the seller being obligated to either settle the options in cash or to acquire or deliver the underlying interest. If the options are 'covered' by the seller holding a corresponding position in the underlying interest or a futures or other options contracts, the risk may be reduced. If the options are not covered, the risk of loss can be unlimited.
iii. Others
Terms and conditions of contracts
Investors should ask their brokers about the terms and conditions of the specific futures or options contracts and associated obligations (e.g. the circumstances under which investors may become obliged to make or take delivery of the underlying asset of a futures contract and, in respect of options, expiration dates and restrictions on the time for exercise). Under certain circumstances (e.g. the issue of bonus shares by a listed company or payment of large special dividends), the specifications of outstanding contracts (including the exercise price of options) may be modified by HKEX to reflect changes in the underlying asset.
Suspension or restriction of trading
Market conditions (e.g. illiquidity) and/or the operation of the rules of certain markets may increase the risk of loss by making it difficult or impossible to effect transactions or liquidate/offset positions. If investors have sold options, this may increase the risk of loss.
What are the trading hours of the HKEX derivatives market?
The trading hours (including the last trading date, the expiry date and the final settlement date) of different derivatives may vary. For details, investors may refer to the trading calendar and the contract summary of each product in “Listed Derivatives” under the “ Our Products” section of the HKEX website.
What is the function of the pre-market opening session in Hong Kong’s derivatives market?
The pre-market opening session (POS) helps establish an orderly market open when the trading system is loaded with large numbers of orders and provides the market with a fair mechanism to determine the calculated opening prices (COP) at which the largest possible number of contracts may be traded, based on a predetermined formula. This helps to maintain order at the market open and minimise price fluctuation. During the pre-market opening session, the COP is established before the market open without matching orders.
At present, the pre-market opening is only available for the trading of HSI, MHI, HHI and MCH futures contracts, MSCI Taiwan Index related futures contracts and Hang Seng TECH Index futures contracts.
A random cutoff mechanism is applied to the pre-opening session and the pre-open allocation session. This enhancement aims to deter the possible gaming strategy of manipulating the COP near the end of the auction process and also to encourage order input at an earlier stage. It will be applied to the POS for both morning and afternoon sessions of the applicable markets.
What is Calculated Opening Price (COP)?
During the pre-market opening session, a COP will be calculated if the highest bid price of the limit orders entered into electronic trading system is greater than or equal to the lowest ask price of the limit orders, and the price will serve as the market opening price for the corresponding product. If more than one price satisfies this criterion, the COP will be calculated according to the established formula set forth in Rule 4.83 of the trading procedures for stock index futures and options under the Rules, Regulations and Procedures of the Futures Exchange. The rules are available in the “
Rules and Regulations” section of the HKEX website.
What are the charges involved in futures and options trading?
Futures and options brokerage is negotiable between brokers and their clients. All futures and options traded on HKEX's derivatives market are stamp duty free. Other charges including the Exchange Trading Fee and the SFC(Securities and Futures Commission) Levy vary from one product to another. Investors should consult their brokers and read carefully the contract specifications before trading. Details of trading fees are available in the “
Derivatives Products” under the “
Products & Services” section of the HKEX website.
Why is it necessary to pay margin for trading futures and selling options contracts?
The clearing houses of HKEX acts as the central counterparty to both the buyer and seller of futures and options so that the counterparty risk of both parties is limited to a single counterparty.
As the central counterparty, it is the clearing house’s statutory duty to manage the risks associated with the clearing and settlement business in order to maintain a stable and orderly clearing and settlement system for the different exchange traded financial products. To this end, HKEX use a series of risk control measures, and one of them is the margin requirement.
Clearing House Participants (i.e. brokers) are required to pay to the clearing house a Clearing House Margin in respect of their open interest (held by the Participants themselves or for their clients). Clearing House Participants in turn charge their clients an amount not less than the Client Margin. There are two types of Client Margin: Initial Margin and Maintenance Margin. The amount of margin is determined by the clearing house using a programme named Portfolio Risk Margining System of HKEX (PRiME) taking into account the historical price volatility of the underlying products (e.g. stocks, indices etc), market conditions and other relevant factors. When opening a position, an investor is required to pay an initial margin to a Clearing House Participant, which then calculates the floating profits or losses of the investor’s position each day after the market close and credits or debits the margin balance accordingly. If the initial margin deposit falls below the maintenance margin, a margin call will be issued, and the investor must deposit additional funds to restore the account to the initial margin level if he does not want to close the position.
How do investors know the futures or options margin requirements?
The margin charged by brokers may vary depending on their assessment of the financial conditions and position of a particular client, but will not be less than the minimum amount stipulated by HKEX. HKEX prepares on a daily basis a margin reference table using historical figures. Brokers may refer to the table when assessing the client margin every trading day. The margin reference table is posted at “
Derivatives Products” under the “
Products & Services” section of the HKEX website. It should be noted that the margin reference table only sets out the minimum margin. The exact margin charged by brokers depends on the financial conditions of each particular client.
What is Close Out?
Futures – An investor can close out his position by buying or selling futures contracts of the same expiry date and quantity but in the opposite direction in order to offset his original position. After the position is closed out, he will no longer have any position in the same futures contracts in his account.
Options – Where an investor makes an opposite order after buying options contracts, i.e. selling the same quantity of options contracts, his position in the options contracts will be closed out.
What is Open Interest?
Open Interest is the total number of futures or options contracts that have been bought or sold, but not settled by offsetting transactions or fulfilled by delivery of the underlying asset. Each open transaction has a buyer and a seller, but for the calculation of open interest, only one side of the contract is counted by the clearing house.
What is Roll-over?
Roll-over involves closing out the expiring position in futures/options contracts first and opening a new position with a later expiry date but the same contract specifications. For example, an investor who has opened a short position in Hang Seng Index futures contracts which expire in September but remains bearish on the performance of the Hang Seng index in October may close out the September contracts and open a short position in Hang Seng index futures for October expiry. The move to renew a futures contract is called roll-over.
What are the orders commonly used in futures and options trading?
Orders that are more commonly used are set out below. Investors should contact their brokers to see if they provide the relevant services before placing an order.
Auction Order - An Auction Order is an order where a bid or offer price is not specified and is entered during the pre-market opening session for execution at the Calculated Opening Price (COP). Given the difference in the quantity of buy orders and sell orders during the auction session, not all auction orders may be matched. Unmatched auction orders will be converted to limit orders at COP, or the best bid or the best ask after the market opens. Where investors predict the market will go up or down at market open, they may input auction orders to buy or sell their contracts at the opening price before the market opens.
Limit Order - A limit order is an order to buy or sell at a specific price or a better price. Investors who do not feel there is an urgent need to execute a trade or who are determined to try to capture the short-term trend in price may input limit orders to try to buy or sell contracts at the price they have in mind.
Market Order - A market order is an order to buy or sell immediately at the current available price without any price restriction. For investors who feel there is an urgent need to buy or sell contracts, the quickest way to execute a trade is to input a market order. However, investors should note that the execution price may deviate from the price they have in mind.
Stop Order - A stop order is an order to buy or sell at a specified price. Where the current market price is the same as the specified price, the stop order will be converted into a market order immediately. During futures trading, a stop order is often used to close out investors’ positions to minimise losses and manage risks. Therefore, a stop order is also known as the stop-loss order.
To increase order flexibility, additional instructions may accompany an order input. Some commonly used instructions are set out below.
Rest of Day - Orders are valid only on the trading day indicated by investors, and become invalid after the market close.
Fill or Kill - Applicable to a limit order only. Where the order cannot be matched at the exact quantity of contracts at the specified price, it will be cancelled automatically at once and will not be executed. For example, an order to buy 10 contracts will be cancelled if there are only five contracts available in the market at the moment.
Fill and Kill - Applicable to a limit order only. Its purpose is to execute as many contracts specified in the order as possible and cancel the remaining unmatched portion. For example, if an investor intends to buy 10 contracts but there are only six available in the market, six contracts will be bought, the remaining four will not be bought and the unfilled part of the order will be cancelled.
Will investors be given any acknowledgement after trading in futures and options?
Like trading in securities, 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. All relevant information of the transaction and the balance of the account at the cut-off date are covered therein. In addition, a statement of account is issued by brokers on a monthly basis. Investors should check carefully the information on these statements.
What are the key changes in relation to the renewed SDNet/2 service contracts between HKEX and Accredited Vendors’? HKEX has renewed the SDNet/2 service contracts with the three existing Accredited Vendors effective from 1 March 2016 and below are the key changes :
- Capped prices will only be available for 1Mbps to 20Mbps circuits and there will be NO capped price for circuits with bandwidth of 30Mbps or above. The new pricing arrangement is applicable to monthly tariff, installation charge and standby service fee.
- There is also change to certain one-off charge e.g. circuit bandwidth upgrade/downgrade, reconfiguration and relocation fee of specific Accredited Vendors.
- Introduction of Application Service Provider (ASP) circuit connection to SDNet/2
What is the installation cost of SDNet/2 circuits?EPs/CPs/CMs/ IVs are advised to contact the Accredited Vendors directly for the prices of SDNet/2 circuit and related services.
Currently, there are some situations where the Accredited Vendors are not allowed to install fibre cables (e.g. inside premises of data centre service providers or buildings whose building & management offices who sell their own fibre cables). EPs/CPs/CMs/IVs may need to bear the extra services cost charged by third parties. In such cases, EPs/CPs/CMs/IVs are advised to check with the Accredited Vendors because the degrees of installed fibre at each building by different Accredited Vendors may vary.
Due to the fact that the installation environment varies in different sites, the selected Accredited Vendor will carry out site visit to the offices of EPs/CPs/CMs/IVs and will discuss with the EPs/CPs/CMs/IVs on the facilities required for the circuit installation. Therefore, EPs/CPs/CMs/IVs should check with the Accredited Vendors if there is any extra cost required for the circuit installation according to actual situation.
After installation of the SDNet/2 circuits, can EPs/CPs/CMs/IVs terminate the service contract any time and change to another Accredited Vendor?The minimum subscription period of SDNet/2 circuit is 3 months.
If EPs/CPs/CMs/IVs wish to terminate the service within the minimum subscription period, they can submit 1 month’s advance notice to the respective Accredited Vendor to terminate the service at the end of the 2nd month.
After the 3-months minimum subscription period, EPs/CPs/CMs/IVs can terminate the service by giving 1 month’s advance termination notice to the respective Accredited Vendor.
Accredited Vendor has the right to ask for any remaining or outstanding payment due to the service termination. EPs/CPs/CMs/IVs should check with Accredited Vendor beforehand whether it is applicable for its service terms and conditions.
How should EPs/CPs/CMs/IV/s select their Accredited Vendors?All Accredited Vendors must provide SDNet/2 service according to the pre-defined technical requirements from HKEX. Technically, SDNet/2 circuits provided by all Accredited Vendors are fully compatible with the market systems of HKEX.
EPs/CPs/CMs/IVs are advised to contact their selected Accredited Vendors and consider the commercial offers and services provided by individual Accredited Vendor. EPs/CPs/CMs/IVs are advised to select Accredited Vendors according to their own business needs. Before selection, EPs/CPs/CMs/IVs are advised to study carefully the terms and conditions offered by the individual Accredited Vendor
If EPs/CPs/CMs/IVs want to downgrade the SDNet circuit bandwidth, would it affect the existing connections?EPs/CPs/CMs/IVs should subscribe not lower than the specified minimum bandwidth. The minimum bandwidth requirements of the respective market systems can be found in the [Price Information /Technical Specification/Service level of SDNet/2 or OMD Connectivity Guide]
http://www.hkex.com.hk/eng/market/sec_tradinfra/sdnet2.htm or
http://www.hkex.com.hk/eng/market/dv_tradinfra/sdnet2.htm or
http://www.hkex.com.hk/eng/market/clr/secclr/sdnet2.htm or
http://www.hkex.com.hk/eng/prod/dataprod/omd/implementation/Phase1a.htm or
http://www.hkex.com.hk/eng/prod/dataprod/omd/Phase2.htm
EPs/CPs/CMs/IVs may subscribe more than the minimum bandwidth from the Accredited Vendors in accordance with their business needs.
What is ASP connection?ASP (”Application Service Provider”) is the service provider providing shared SDNet/2 circuit services connectivity to multiple EPs/CPs/CMs/IVs. Under the ASP connection service, ASP will subscribe the SDNet/2 circuits from the Accredited Vendor(s) and manage the network connectivity on behalf of the EPs/CPs/CMs/IVs.
ASPs should contact the Accredited Vendor regarding the application of ASP connections and HKEX-IS on the data licensing requirement.
EPs/CPs/CMs/IVs should contact their respective software/system providers regarding the ASP connection services.
Who are eligible to apply for ASP connection?The ASP connection initiative aims to enhance the infrastructure efficiency of the application providers who are also providing managed services to market participants. Therefore, BSS vendors / OAPI developers / Market Data ASPs are eligible to apply for the ASP connections. However, HKEX reserves the right of final decision.
What application accesses can be aggregated on an ASP connection?Currently, the HKEX Application accesses allowed to be aggregated on ASP connection are listed as follow:
Cash Market and China Connect Market: OCG, OMD-C, CCCG, OMD-CC
Derivatives Market: HKATS connection through Central Gateway, DCASS connection through Central Gateway, OMD-D
Market segregation is required, which means that an ASP connection may only access to either Cash Market and China Connect Market applications or Derivatives Market applications.
What is the existing SMP service in derivatives market?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:
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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”).
What are the SMP enhancements?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:
- 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.
- 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.
- 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)
What cancellation methods are available?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:
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What is SMP ID?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.
Who can apply for SMP ID?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)
How many SMP IDs can an EP apply for itself and for its clients?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)
Can different entities co-use the same SMP ID?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)
Are supporting documents required upon application of an SMP ID?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.
What should EPs be aware of and remind their clients when using the SMP Service?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.
Will the usage of the SMP Service be monitored?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.
What is the possible consequence of misusing the SMP Service or breaching the SMP requirements? 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.
What trading behaviour would be regarded as a misuse of SMP?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.
What are the expected control measures for using the SMP Service?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.
Disabling ID-based SMP Function for Individual Order or QuoteFor 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.
What is the applicable period for 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.
Does SMP apply to all order types?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).