- HKEX proposes to reduce stock minimum spreads within certain price bands, with an aim to lower overall transaction costs and boost liquidity
- Two-phase approach will be adopted to reduce minimum spreads from $0.5 to $50 by 50-60%
- The consultation period will end on 20 September 2024
Hong Kong Exchanges and Clearing Limited (HKEX) is today (Friday) pleased to publish a Consultation Paper on the proposed reduction of minimum spreads in the Hong Kong securities market. The consultation period will last for 12 weeks, ending on 20 September 2024.
HKEX is proposing a reduction of the minimum spreads of equities, Real Estate Investment Trusts (REITs), and equity warrants (collectively, Applicable Securities) in Hong Kong’s securities market, as part of ongoing efforts to enhance its market microstructure and liquidity. HKEX’s proposal adopts a gradual, two-phase approach to reduce the minimum spreads of selected price bands, following a holistic review of the liquidity profile of the Applicable Securities.
In Phase 1, the proposal recommends a 50 to 60 per cent reduction in the minimum spreads of price bands between $10 and $50. Subject to the implementation of the proposed changes in Phase 1 and a review of its impact, HKEX may consider proceeding with the implementation of Phase 2 to reduce the minimum spread for price band between $0.5 and $10 by 50 per cent. It is expected that around 300 and 1,300 Applicable Securities, accounting for nearly 30 per cent and 25 per cent of the average daily turnover of equities, will be included in Phase 1 and 2 respectively1.
Proposed changes to the spread table of the Applicable Securities:
|
|
Price Band
|
Original Minimum Spread
|
Proposed Minimum Spread
|
|
Phase 1
|
$10.00 - $20.00
|
$0.020
|
$0.010 (-50%)
|
|
$20.00 - $50.00
|
$0.050
|
$0.020 (-60%)
|
|
Phase 2
|
$0.50 - $10.00
|
$0.010
|
$0.005 (-50%)
|
HKEX Deputy Chief Executive Officer and Co-Chief Operating Officer, Wilfred Yiu, said: “At HKEX, we are always looking at ways to increase the attractiveness of Hong Kong’s capital markets as an international financial centre. We are pleased to present for consultation this proposal to reduce the minimum spreads of selected traded securities. After extensive analysis, we have found that reducing minimum spreads for securities in certain price ranges in our market could help with the price discovery process and facilitate greater liquidity. We look forward to receiving feedback from market participants on our proposal, as together we continue to deliver microstructure enhancements supporting the needs of our investors.”
Minimum spread is the minimum price change for a stock traded on an exchange and determines the tightest bid-ask spread allowed. With a tighter minimum spread, investors may be able to enjoy lower overall transaction costs. The review of the minimum spread was part of basket of measures supported by The Task Force on Enhancing Stock Market Liquidity set up by the HKSAR Government last year that was aimed at enhancing market liquidity.
Details of the proposed changes are available in the Consultation Paper published on the HKEX website. HKEX invites market feedback on its proposals through submitting a response to the questionnaire during the consultation period, which closes on 20 September 2024.
Please also refer to the latest HKEX podcast with HKEX Head of Equities Product Development, Brian Roberts, who explains the proposed enhancements in more detail.
Note:
- Based on the back test result for equities traded between 2021 and 2023.
About HKEX
Hong Kong Exchanges and Clearing Limited (HKEX) is a publicly-traded company (HKEX Stock Code: 388) and one of the world’s leading global exchange groups, offering a range of equity, derivative, commodity, fixed income and other financial markets, products and services, including the London Metal Exchange.
As a superconnector and gateway between East and West, HKEX facilitates the two-way flow of capital, ideas and dialogue between China and the rest of the world, through its pioneering Connect schemes, increasingly diversified product ecosystem and its deep, liquid and international markets.
HKEX is a purpose-led organisation which, across its business and through the work of HKEX Foundation, seeks to connect, promote and progress its markets and the communities it supports for the prosperity of all.
www.hkexgroup.com
Ends