Bourse operator Hong Kong Exchanges and Clearing (HKEX) is set to reduce the minimum swing for stock prices by up to 60 per cent, in a move to bolster liquidity and transactions in Asia's third-largest capital market.
The reduction of the minimum price change, which determines the tightest bid-ask spread allowed, will encourage smaller trades. It will apply to equities, real estate investment trusts and other applicable securities - excluding debt securities, exchange-traded options and products, and structured products - with the first phase being rolled out in mid-2025. The second phase will be implemented in mid-2026, subject to a review of the first phase's results.
The announcement follows a consultation in June, in which HKEX received 110 responses, with the majority showing support, according to the consultation conclusions published on Tuesday.
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Under the first phase, the minimum spread of securities that fall within the price bands of HK$10 to HK$20 and HK$20 to HK$50 will be reduced by 50 per cent and 60 per cent, respectively. The second phase will apply to securities in the HK$0.50 to HK$10 range, for which the minimum spread will drop by 50 per cent.
"HKEX is fully committed to elevating the depth and vibrancy of its markets, and this is reflected in the continuous roll-out of new microstructure enhancements," said Wilfred Yiu, HKEX's deputy CEO, co-chief operating officer and co-head of markets.
The reform aims to lower overall transaction costs and support a more efficient price-discovery process, he added.
In addition, the Securities and Futures Commission will review the stock settlement fee structure to ensure it imposes no additional market trading cost.
The minimum and maximum components will be replaced with an adjusted fee rate charged on notional value traded. This is designed to be "cost-neutral" to the market as a whole, while providing a "more equitable and deterministic cost structure", the HKEX said in the statement. Further details will be announced next year, subject to regulatory approval.
Wilfred Yiu, deputy CEO of Hong Kong Exchanges and Clearing, pictured on April 9, 2024. Photo: Courtesy of HSBC Global Investment Summit alt=Wilfred Yiu, deputy CEO of Hong Kong Exchanges and Clearing, pictured on April 9, 2024. Photo: Courtesy of HSBC Global Investment Summit>
Meanwhile, HKEX will adjust the order input price limit and make temporary adjustments to the market-making obligations for the relevant single stock options. This aims to provide "greater flexibility" for order input and trading activities under the tightened spreads, the firm said.
The capitalisation of the exchange's securities market reached HK$34 trillion (US$4.4 trillion) at the end of November, a surge of 9 per cent from the same period a year earlier, according to HKEX. Average daily turnover climbed 24 per cent year on year to HK$130.9 billion in the first 11 months.
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