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HKEX plans to offer derivatives trading in some products on public holidays

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Public holidays will no longer be considered sacrosanct for some brokers in Hong Kong under a new proposal from the operator of the city's stock exchange.

Hong Kong Exchanges and Clearing (HKEX) has issued a new consultation paper on its plan to offer futures and options trading of non-Hong Kong dollar-denominated products on public holidays in the city, as well as extended trading of these products from a half day to a full day on Christmas Eve, New Year's Eve and the eve of Lunar New Year. The only exception will be New Year's Day.

The consultation will bring the Hong Kong stock exchange in line with other markets globally and comes after it began offering 38 futures and options contracts this year tied to MSCI's Asia and emerging markets focused indices - many of which cover regional and global stock markets outside the city. Many of those MSCI products were traded in Singapore for more than two decades before moving to Hong Kong this year.

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"To ensure Hong Kong retains its competitiveness as a financial hub, and to allow investors to better manage or lower their overall risk portfolio, it is essential that they have the ability to trade and clear non-[Hong Kong dollar] denominated products when the markets of their underlying securities are open," HKEX said in its consultation paper on Tuesday. "That means without being bound by Hong Kong public holidays."

Hong Kong Exchanges and Clearing CEO Nicolas Aguzin. Photo: HKEX alt=Hong Kong Exchanges and Clearing CEO Nicolas Aguzin. Photo: HKEX

There is no plan to offer trading in the so-called cash market - stock trading - on public holidays and it will maintain half-day trading of Hong Kong-dollar denominated products, the bourse operator said.

HKEX first announced its proposal to begin offering derivatives trading of MSCI products on public holidays last month. The current consultation will also include certain foreign exchange and metals futures, such as gold and yuan-euro futures.

The consultation will run for four weeks to December 6.

Depending on market feedback and regulatory approval, HKEX plans to launch holiday trading of certain derivatives in April next year, with a readiness test in the first quarter of next year.

It is the latest proposal to modernise the exchange under HKEX CEO Nicolas Aguzin.

The Hong Kong stock exchange wrapped up a consultation in October to potentially allow special purpose acquisition companies (SPACs) to list in the city. A decision on the SPAC consultation is expected soon.

SPACs have been one of the hottest fundraising trends since the beginning of 2020, raising nearly US$144 billion this year alone, with the bulk of the listings in the United States.

The holiday trading proposal, which would be optional for market participants, would delineate derivatives trading between brokers who are focused only on the Hong Kong market and those who want to offer a wider array of products.

Market participants who do not participate in the holiday trading scheme will not be allowed to offer those futures contracts, even on normal business days, under the proposal.

"HKEX had considered measures that would allow [non-holiday] NH Participants to access [holiday] H products on business days, but doing so would require a much more complex model and potentially create market confusion," the bourse operator said.

Unlike other markets, market participants in Hong Kong will not be required to offer money settlement capabilities, and system and operational availability on public holidays if they only focus on Hong Kong market products.

"As many [exchange participants] EPs have little to no business demand in trading non-[Hong Kong dollar] denominated products, requiring them to meet these requirements would be inefficient and create an unnecessary burden," the bourse said.

Non-participating brokers will have four weeks after the readiness test in the first quarter to wind down their positions in holiday trading products.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.