Implementation of Volatility Control Mechanism in derivatives market on 14 November 2016
With effect from 14 Nov 2016, the Hong Kong Exchange (the “HKEX”) will implement the Volatility Control Mechanism (VCM) in derivatives market and the features and trading arrangements are as follows:
Coverage of Derivative Instruments in the VCM
VCM will only be applicable to the spot month and next calendar month contracts in the Hang Seng Index (HSI), Mini-Hang Seng Index (MHI), H-shares Index (HHI) and Mini H-shares Index (MCH) futures markets (total 8 contracts, collectively known as “VCM Exchange Contracts”).
VCM Model
Source of image: HKEX Illustrative example: The trading of an applicable VCM Exchange Contract during normal trading session (excluding the first 15 minutes of morning and afternoon sessions, the last 20 minutes of the afternoon session), the above example of individual derivatives contract trading is for illustrative purpose only
Applicable time of VCM
The VCM is only applicable to normal trading session, excluding the Pre-Market Opening Period and After-Hours Futures Trading session and the following sessions in normal trading session:
the first 15 minutes of the morning and afternoon trading sessions
the last 20 minutes of the afternoon trading session
Triggering point
Take the last traded price 5-min ago as reference price, if a VCM Exchange Contract is ± 5% away from the reference price, 5-min cooling off period will be triggered In the example above, the reference price is the last traded price 5-min ago (10000). At 10:08 am, when an order is about to execute below the lower limit of 9500, the order is rejected and the VCM is triggered.
Cooling-off period
The cooling-off period would last for 5 minutes, and trading would resume to normal afterwards
The triggered instrument would only be allowed to trade within price limit
Maximum of one trigger in each trading session for each instrument (i.e. 1 in the Morning Session and 1 in the Afternoon Session)
Post Cooling-Off period
After the cooling-off period, trading will resume to normal and no further VCM monitoring will be imposed on that particular VCM Exchange Contract for the remainder of the trading session.
Trading of Linked Instruments
All VCM Exchange Contracts will be treated independently, and therefore trading of its related or linked instruments (e.g. far month futures and options contracts) will remain unaffected when a VCM is triggered on a VCM Exchange Contract.
Should you have any enquiries about the aforesaid, please feel free to call our Customer Service Hotline at (852) 3583 3388 (Hong Kong) or (86) 755 8266 3232 (Mainland).
For and on behalf of Haitong International Futures Limited
