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Stocks and Derivatives Trading to Weather Bad Weather

Stocks and Derivatives Trading to Weather Bad Weather

Severe weather shouldn't disrupt trading.

A public consultation from the Hong Kong Exchanges and Clearing (“HKEX”) to keep trading open during severe weather strongly suggests that trading delay or market closure when the Hong Kong Observatory issues Typhoon signal No. 8 or higher, or raises a black rainstorm alert, may finally be relegated into history.

The rules to interrupt trading in the event of severe weather dates back to the 1950s, modern electronic and high-bandwidth technologies allow trading to continue regardless of weather conditions, and such change would enhance Hong Kong role’s as a financial center while generating more revenue and tax income for the HKEX and government respectively. Hong Kong remains the odd one out among its peers as it continues to disrupt stock and derivatives trading due to weather in spite electronic trading being fully implemented since 2017.

Since 2018, severe weather events have resulted in 11 instances of market-wide trading suspensions, four of which took place in 2023. These trading suspensions lasted between several hours and a full trading day.

Under the HKEX’s proposals, severe weather conditions will no longer have automatic consequential impact on the continuity of trading. It is aimed that securities and derivatives markets, including Southbound and Northbound Stock Connect, derivatives holiday trading and afterhours trading, to be open and available to all local, regional and international investors during severe weather conditions.

During a severe weather event, the trading, post-trade and listing arrangements will be substantially the same as those during regular trading days, with some necessary adjustments needed to ensure the market’s operational resilience, and the safety of market participants, as the provision of some services provided via physical outlets would be unavailable.

The HKEX’s trading, clearing, settlement and market data systems will be accessible via remote networks during a severe weather event. The HKEX has enhanced its infrastructure and operational parameters to reduce the need for physical access.

Moreover, system changes may be required to implement the proposed change, notwithstanding that the public consultation is still ongoing, the HKMA would encourage banks to begin planning and preparation work as early as possible, so as to shorten the lead time for the introduction of severe weather trading, given that banks are also typically closed for similar weather events, therefore potentially delaying processing and settlement.

The consultation ends on 26 January 2024, feedback should be submitted before this date.