HKEx Preopen Session Guide

8/8/2019 HKEx Preopen Session Guide

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Cash Market

Pre-opening Session &

Index Basket Order Trading Mechanism

February 2002


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Agenda

I. Pre-opening Session

Purposes & Benefits Main Features

Trading Operations

ContingencyA

rrangement


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Agenda Contd

II. Index Basket Order Trading Mechanism

Purposes & Benefits

Main Features

Criteria for Index Basket Order

III. Market Rehearsal and Implementation

IV. Q & A Session


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PRE-OPENING SESSION


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Purposes & Benefits

Allow Exchange Participants to start order input during

the Pre-opening Session and improve their operational

efficiency

Reduce the loading of the system arising from the large

number of order inputs and trade execution messages at

the commencement of morning session

Prevent significant price fluctuations and possible

manipulation at the commencement of Continuous

Trading Session


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Purposes & Benefits Contd

Establish an optimized opening price

Maximize the quantity of order matching

Allow Exchange Participants to report pre-open trades


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Main Features

Trading Mechanism:

Order matching by Single Price Auction only (no market making

and continuous automatching)

Reporting of pre-open trades

2 new order types

At-auction Order

At-auction Limit Order


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Main Features ...Contd

Pre-opening Session will apply to all markets, all securities

and all trading facilities from 9:30 a.m. to 10:00 a.m.

It comprises four different periods as follows:

Order Input Period 9:30 a.m. to 9:45 a.m.

Pre-order Matching Period 9:45 a.m. to 9:50 a.m.

Order Matching Period 9:50 a.m. to 9:58 a.m.

Blocking Period 9:58 a.m. to 10:00 a.m.


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Order Input Period (9:30 a.m. to 9:45 a.m.)

Input of at-auction orders (without a specified price) andat-auction limit orders (with a specified price) only

Orders may be modified or cancelled

Both Indicative Equilibrium Price (IEP) and Indicative

Equilibrium Volume (IEV) will be calculated and

displayed continually

IEP is the price at which the maximum number of shares

can be traded if matching occurs at that time


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Order Input Period (9:30 a.m. to 9:45 a.m.) ...Contd

IEV is the number of shares that would be traded at the

IEP

The nominal price equals to IEP (if available) or the

previous closing price (if IEP is not available)

Orders subject to the same validation as Continuous

Trading Session, except 8-spread quotation rule is waived

Short selling orders not accepted

Input of pre-open trades allowed


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Pre-order Matching Period (9:45 a.m. to 9:50 a.m.)

Same as Order Input Period except:

input of at-auction order only all orders cannot be modified or cancelled

Avoid significant change in the IEP by removing orders

just before the commencement of the Order Matching

Period

Provide a mechanism to adjust the IEP to a fair market

price while attracting more order (i.e. at-auction orders)

in this period


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Order Matching Period (9:50 a.m. to 9:58 a.m.)

no input, modification and cancellation of orders

orders will be matched in order type (at-auction orderfirst), price and time priority at the final IEP in this

period

details of concluded trades will be disseminated to

relevant Exchange Participants and the aggregate totalwill be disseminated as one single trade with trade type U

to the market immediately


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Order Matching Period (9:50 a.m. to 9:58 a.m.) ...Contd

cancellation of at-auction orders and conversion of at-

auction limit orders to limit orders which will be carriedforward to Continuous Trading Session

no input of pre-open trades


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Blocking Period (9:58 a.m. to 10:00 a.m.)

a break between the Pre-opening Session and the

Continuous Trading Session

no input / modification / cancellation of orders and pre-

open trades


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Trading Operations

(1) Input operations of new order types

At-auction Orders

Input of at-auction orders is permitted during Order InputPeriod and Pre-order Matching Period but Modification /

Cancellation of at-auction orders is only permitted during

Order Input Period

At-auction orders enjoy a higher auction matching priority

than at-auction limit orders

Unfilled at-auction orders will be cancelled automatically


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At-auction Orders ...Contd

Press PRE/SP + BUY ORD or SELL ORD (same asEnhanced Limit Order and Special Limit Order)

Enter the order details (e.g. stock code, quantity,etc)

Order type : At-auction Order = A

No order price is associated with at-auction orders, i.e. at-

auction orders will be matched at the final IEP

PRE/SP BUY ORD STOCK 1 PRICE 0.000 QTY 2,000

CHEUNG KONG MAIN BROKER TYPE A AON? N REF SS? N TC


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(1) Input operations of new order types ...Contd

At-auction Limit Orders

At-auction limit order is a buy order or sell order with a

specified price

Input, modification and cancellation of at-auction limit

orders are only permitted during Order Input Period

Unfilled at-auction limit orders, with input price not

deviating 9 times or more from the prevailing nominal price,

will be converted to limit orders at the input price and

carried forward to the Continuous Trading Session of the

same day


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At-auction Limit Orders ...Contd

Press PRE/SP + BUY ORD or SELL ORD (same as

Enhanced Limit Order and Special Limit Order)

Enter the order details (e.g. stock code, price, quantity,etc)

Order type : At-auction Limit Order = I

PRE/SP BUY ORD STOCK 1 PRICE 71.75 QTY 2,000

CHEUNG KONG MAIN B ROKER TYPE I AON? N REF SS? N TC


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(2) Display of information

At-auction order/at-auction limit order

at-auction orders and at-auction limit orders with prices

at or better than IEP will be grouped under the IEP queue

at-auction orders will not be displayed if there is no IEP

IEP / IEV

calculated and displayed throughout the Order Input

Period and the Pre-order Matching Period


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(3) Examples of Pre-opening SessionExample 1

Order Input

The table below shows all orders in the order book at the

commencement of Order Matching Period, sorted in the

sequence of matching priorityI A SK

roker Tim e olu m e Price Price olu m e Tim e roker

A 09:35 2 ,000 A t-auction 31 .90 2 ,000 09:31 P

09:30 1 ,000 32 .00 31 .90 8 ,000 09:40

09:41 8 ,000 32 .00 32 .00 10 ,000 09:35 M

09:32 6 ,000 31 .90 32 .00 4 ,000 09:43E 09:40 3 ,000 31 .90 32 .00 2 ,000 09:44 O

09:44 2 ,000 31 .90 32 .10 6 ,000 09:42 K

09:43 2 ,000 31 .80 32 .10 2 ,000 09:43

32 .20 4 ,000 09:31 H

32.20 2 ,000 09:38 I

32 .20 1 ,000 09:42 J


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Example 1 Contd

Determination of IEP

In general, the IEP shall be one of the bid prices or ask prices

which falls at or within the range of the ighest Bid Price and

the Lowest Ask Price and results in maximum matched shares

Therefore, the IEP is determined to be $32.00

Possible IEP Acc. Bid Qty Acc. Ask Qty Matched Shares

32.00 11,000 26,000 11,000

31.90 22,000 10,000 10,000


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Example 1 Contd

Order Matching

The following trades are generated:

Buying Broker Trades Generated Selling Broker

A 2,[email protected] P

B 1,[email protected] Q

C 7,[email protected] QC 1,[email protected] M


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Example 1 Contd

Orders Carried Forward to Continuous Trading Session

The following unfilled at-auction limit orders would be

carried forward to the Continuous Trading Session:

BID AS

Broker Time Volume Price Price Volume Time Broker

D 09:32 6,000 31.90 32.00 9,000 09:35 M

E 09:40 3,000 31.90 32.00 4,000 09:43 N

F 09:44 2,000 31.90 32.00 2,000 09:44 O

G 09:43 2,000 31.80 32.10 6,000 09:4232.10 2,000 09:43 L

32.20 4,000 09:31

32.20 2,000 09:38 I

32.20 1,000 09:42 J


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Example 2

During Order Input Period (9:30 - 9:45 am)

Assuming that the following orders are entered during the

Order Input Period:

Bid Ask

Broker Time Volume Price Broker Time Volume Price

A 09:36 1,000 64.25 D 09:39 2,000 63.75

B 09:32 5,000 64 E 09:38 3,000 64

C 09:42 2,000 63.75 F 09:33 2,000 64.25

G 09:40 2,000 64.25


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Example 2 Contd

The IEP is calculated to be $64 and the cumulative available

quantities at the bid and ask sides at $64 are 6,000 and 5,000

shares respectively.

Possible IEP Acc. id ty Acc. Ask ty atched hares

64.25 1,000 9,000 1,000

64 6,000 5,000 5,000

63.75 8,000 2,000 2,000


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Example 2 Contd

During Pre-order Matching Period (9:45 - 9:50 am)

A broker, who wants to match the surplus at IEP or is of theview that the IEP is on the high side can enter an ask at-auction order of 1,000 shares or more.

Assuming Broker enters an ask at-auction order of 5,000shares during the Pre-order Matching Period and the orderbook is as follow:

Bid Ask

Broker ime olume Price Broker ime olume Price

A 09:36 1,000 64.25 09:46 5,000 at-auction

order

09:32 5,000 64 09:39 2,000 63.75

09:42 2,000 63.75 09:38 3,000 64

09:33 2,000 64.25

09:40 2,000 64.25


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Example 2 Contd

The IEP is now changed from $64 to $63.75 but the number of

tradable shares is increased from 5,000 to 7,000.

Possible IEP Acc. Bid Qty Acc. Ask Qty Matched Shares

64.25 1,000 14,000 1,00064 6,000 10,000 6,000

63.75 8,000 7,000 7,000


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Example 2 Contd

If another broker I is of the view that the IEP is low and entersa bid at-auction order of 10,000 shares. The order book is asfollow:

id Ask

roker Time olume Price roker Time olume Price

I 09:48 10,000 at auction

order

H 09:46 5,000 at-auction

order

A 09:36 1,000 64.25 09:39 2,000 63.75

09:32 5,000 64 09:38 3,000 64

09:42 2,000 63.75 09:33 2,000 64.2509:40 2,000 64.25


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Example 2 Contd

The IEP is changed from $63.75 to $64.25 and the number of

tradable shares is further increased to 11,000.

Since only at-auction order can be entered and no

modification or cancellation of orders is allowed during thePre-order Matching Period, it can avoid significant change

in the IEP.

Possible IEP Acc. id ty Acc. Ask ty Matched Shares

64.25 11,000 14,000 11,00064 16,000 10,000 10,000

63.75 18,000 7,000 7,000


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CONTINGENCY ARRANGEMENT

Typhoon and Rainstorm

If Typhoon Signal No. 8 or above hoisted or Black

Rainstorm Warning issued and not lowered/discontinued

at or before 7:30 a.m., no Pre-opening Session will be

commenced for that day

The time for commencement of Continuous TradingSession (if any) will follow the current practice


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Typhoon and Rainstorm ......Contd

If Typhoon Signal No. 8 or above hoisted during the Pre-

opening Session, the Pre-opening Session will continue

until it ends. There will be no Morning Session and

Extended Morning Session

The commencement of the Afternoon Session will follow

the current practice

If Black Rainstorm Warning issued during the Pre-opening

Session, trading will continue


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CONTINGENCY ARRANGEMENT ...Contd

Emergency - Market Close

If market closes (eg. due to system failure) during the

Order Input Period or the Pre-order Matching Period, allat-auction and at-auction limit orders will be cancelled.

Trading will resume with the Continuous Trading Session

directly on the same day.

If market closes during the Order Matching Period and

trading can be resumed on the same day, the Order

Matching Period will continue at the time of restart.


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Index Basket Order TradingMechanism


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Purposes & Benefits

Provide an additional order data packet design to contain a

basket of orders in one single order message

Facilitate execution of multiple orders for index basket

trading, including index arbitrage


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Main Features

Index Basket Order can only be input to the trading system

through Broker Supplied System (BSS) during the

Continuous Trading Session Only apply to the constituent stocks of ang Seng Index

( SI) at initial stage (may consider to cover other tradable

indices later)

Each Index Basket Order will be submitted to the system at

a rate of one basket order per second (same as current

throttle rate for single order)


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Upon submission to AMS/3 host, the basket order will be

split into normal special limit order which have the

following features: matching priority in time sequence only;

orders will not be rejected due to price changes during a fast market;

unfilled orders will be cancelled immediately; and

brokers do not need to manage a large number of orders requiring

price modification or cancellation in the case of sudden changes in

market conditions.


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Criteria for Index Basket Order Each basket order shall meet the following criteria:

Each basket order must only comprise special limit order

Each basket order must contain at least 18 constituent stocks of the

SI

Each basket order has to track at least 90% of the market

capitalisation of the SI

The weighting of each stock in a basket order must not deviate from

its index weighting by more than 20%

Each basket order must be one-sided (i.e either buy orders or sell

orders) Non-compliance with any of the aforesaid criteria may

result in suspension of input of Index Basket Order


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Criteria for Index Basket Order ...Contd

An IllustrationWeighting in Index Basket Order

Ranking

Stock

Code Stock Nam e

Weighting

in HSI (%) M ax (%) Min (%)

(i .e. deviation


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Market Rehearsal and Implementation

2 market rehearsals will be conducted in March 2002

Subject to the results, the Pre-opening Session and Index

Basket Order Trading Mechanism will be implemented assoon as the market is ready


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Q &A Session


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ALGORIT M OF

IEP CALCULATION


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IEP Calculation

IEP presents whenever:ighest Bid Price ofAt-auction Limit Orders > Lowest Ask

Price ofAt-auction Limit Orders

With IEP Without IEP

Bid Ask Bid AskPrice Volume Price Volume Price Volume Price Volume

at-auction 500 at auction 1,000at-auction 1,000 atauction 1,500

$205 2,000 $201 1,000 $203 1,000 $205 1,000$203 1,000 $203 500 $202 1,000$202 500 $205 1,000 $201 500


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IEP Calculation ...Contd

Rule 1 - IEP must be a price at or between ighest Limit Bid

and Lowest Limit Ask

The IEP must be one of the bid prices or ask prices which falls

at or within the range of the ighest Bid Price and the LowestAsk Price, i.e. $205, $203, $202 and $201.

* Go to Rule 2 if more than 1 price fulfil Rule 1

Order Book

B id A skPrice Volum e Price Volum e

at-auction 500 at auction 1,000

$205 2,000 $201 1,000

$203 1,000 $203 500

$202 500 $205 1,000


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Rule 2 - Pick the Price with Maximized Matched Shares

The IEP will be either $203 or $205 in which the quantity ofmatched shares is maximized:

Price Matched Shares $201 - 2,000 shares $202 - 2,000 shares $203 - 2,500 shares

$205 - 2,500 shares

* Go to Rule 3 if more than 1 price fulfil Rule 2

O r de r B o o k

B id A sk

P r ice Vo lu m e P r ice Vo lu m e

a t-au ction 5 00 a t a u ction 1 ,0 00

$ 205 2 ,0 00 $ 201 1 ,0 00$ 203 1 ,0 00 $ 203 5 00

$ 202 5 00 $ 205 1 ,0 00


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IEP Calculation ...ContdRule 3 - Pick the Price with Lowest Normal Order Imbalance

The IEP will be either $203 or $205 in which the normal orderimbalance is the lowest:

* If more than 1 price fulfil Rule 3:

- Go to Rule 4 when there is previous closing price; or

- Go to Rule 6 when there is no previous closing price.

O r d e r o o k

id A sk

P r ic e o lu m e P r ic e o lu m e

a t-a u c tio n 5 0 0 a t a u c t io n 1 ,0 0 0

$ 2 0 5 2 ,0 0 0 $ 2 0 1 1 ,0 0 0

$ 2 0 3 1 ,0 0 0 $ 2 0 3 5 0 0$ 2 0 2 5 0 0 $ 2 0 5 1 ,0 0 0

Possible IEP Acc. id Qty Acc. Ask Qty Matched Qty Imbalance

$203 3,500 2,500 2,500 1,000

$205 2,500 3,500 2,500 1,000


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Rule 4 - Pick the Price which is closest to the previous closing

price

Suppose the Previous Closing Price is $204.

$203 and $205 are of equadistant from the previous closing

price

* Go to Rule 5 if more than 1 price fulfil Rule 4.

O r d e r B o o k

B id A sk

P r ice Vo lu m e P rice Vo lu m e

a t-au ction 5 00 a t a u ction 1 ,0 00

$ 205 2 ,0 00 $ 201 1 ,0 00

$ 203 1 ,0 00 $ 203 5 00

$ 202 5 00 $ 205 1 ,0 00


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Rule 5 - Pick the igher Price

Select the higher price. The IEP will be $205.* IEP can be calculated up to this rule with previous closing

price.

Order Book

Bid Ask

Price Volume Price Volume


$205 2,000 $201 1,000

$203 1,000 $203 500

$202 500 $205 1,000


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Rule 6 - Pick the ighest Price (only applicable if no previous

closing price)

Select the highest price. The IEP will be $205.

* Consider this rule only when there is no previous closing

price and more than 1 price fulfil Rule 3.

rder ook

id Ask

Price olume Price olume


$205 2,000 $201 1,000

$203 1,000 $203 500

$202 500 $205 1,000

Documents

HKEx Preopen Session Guide