FAQ in relation to Pre-opening Session

Transcription

1 FAQ in relation to Pre-opening Session 1. What is the Pre-opening Session? The Pre-opening Session is an additional trading session of 30 minutes which takes place before the Morning Trading Session. It allows orders to be entered into the trading system, AMS/3, for a single price auction, and transactions concluded before the commencement of the Morning Trading Session to be reported by Exchange Participants. The Pre-opening Session consists of an order input period, a pre-order matching period, an order matching period and a blocking period as follows: Order Input Period Pre-order Matching Period Order Matching Period Blocking Period From 7 March 2011 onwards From 9:00 a.m. to 9:15 a.m. From 9:15 a.m. to 9:20 a.m. From 9:20 a.m. to 9:28 a.m. From 9:28 a.m. to 9:30 a.m. During the order input period, only at-auction orders and at-auction limit orders are accepted. Orders are accumulated and updated in AMS/3 continuously and may be modified or cancelled. Input of pre-open trades is allowed during this period. During the pre-order matching period, only at-auction orders are accepted and modification or cancellation of orders in AMS/3 will not take place. It can avoid significant changes in the Indicative Equilibrium Price (IEP) and adjust the IEP to a fair market price. Input of pre-open trades is allowed during this period. During the order matching period, no input, modification and cancellation of orders are allowed. Orders will be matched in order type (at-auction order first), price and time priority at the final IEP. No input of pre-open trades is accepted during this period. During the blocking period, no terminal activities are allowed. It is a break between the Pre-opening Session and the Morning Trading Session.

2 The information of the trades concluded by AMS/3 during the order matching period will be disseminated to Exchange Participants and information vendors. 2. What are the purposes of a Pre-opening Session? The Pre-opening Session determines a fair opening price of each security and reduces the loading of the System from the large number of order inputs and trade execution messages at the commencement of the Morning Trading Session. It also helps to reduce the workload of Exchange Participants at the commencement of the Morning Trading Session and increases their operational efficiency. 3. What kind of orders can be entered during the Pre-opening Session? During the order input period of the Pre-opening Session, only at-auction orders and at-auction limit orders are accepted. During the pre-order matching period of the Pre-opening Session, only at-auction orders are accepted. An at-auction order is a market order without a specified price. It enjoys a higher order matching priority than an at-auction limit order. It will be cancelled automatically after order matching. Investors who place at-auction orders should note that the final traded price (i.e. final IEP) is not known at the time of order input and may not fall within their expected price range. An at-auction limit order is a limit order with a specified price. After order matching in the Pre-opening Session, unfilled at-auction limit orders with input price not deviating 9 times or more from the nominal price will be converted to limit orders and carried forward to the Morning Trading Session. 4. Will the limit orders / enhanced limit orders / special limit orders be rejected by the System during the Pre-opening Session? In general, the AMS/3 Host will only accept at-auction orders and at-auction limit orders during the Pre-opening Session. Limit orders / enhanced limit orders / special limit orders entered to the AMS/3 Host during this session will be rejected. However, orders entered through different trading facilities may get different treatment.

3 For AMS terminal, limit orders / enhanced limit orders / special limit orders entered are directly submitted to AMS/3 and will be rejected. For MWS trading device, limit orders / enhanced limit orders / special limit orders entered will be maintained in the MWS trading device and will only be submitted to the AMS/3 Host at the commencement of the Morning Trading Session. BSS trading device is developed by the Exchange Participant, so the treatment of limit orders / enhanced limit orders / special limit orders entered during the Pre-opening Session will depend on the system design of the BSS, which is based on the Exchange Participant's operational needs. 5. Can pre-open trades still be reported during the Morning Trading Session? Exchange Participants are allowed to report the pre-open trades within the first 15 minutes of the Morning Trading Session. The Pre-opening Session is an additional period for reporting pre-open trades. The market turnover calculated during the order input and the pre-order matching period stems from the reporting of pre-open trades. Pre-open trades are concluded before the commencement of continuous trading session, including those concluded but not recorded in AMS/3 on the previous trading day. 6. What are Indicative Equilibrium Price (IEP) and Indicative Equilibrium Volume (IEV)? How are they determined? An IEP is calculated during the Pre-opening Session and serves as the market opening price for the corresponding security. An IEP will only be calculated if the highest bid price of the buy at-auction limit orders is equal to or higher than the lowest ask price of the sell at-auction limit orders. If more than one price satisfies this criterion, the IEP shall be calculated according to the following rules: (i) the IEP shall be one of the bid prices or ask prices which falls within the range of the highest bid price of the buy at-auction limit orders and the lowest ask price of the sell at-auction limit orders (inclusive of both prices) at which the aggregate size of the trades to be concluded based on the methodology specified in the Rules of the Exchange is maximised;

4 (ii) if more than one price satisfies this rule, the IEP will be the price at which the normal order imbalance is the lowest. For these purposes, normal order imbalance is defined as the difference between the aggregate size of the buy at-auction orders and the buy at-auction limit orders with bid prices at or better than certain price and the aggregate size of the sell at-auction orders and the sell at-auction limit orders with ask prices at or better than the same price; (iii) if more than one price satisfies this rule, the IEP shall be- (a) the highest of such prices if in relation to each and every of such prices, the aggregate size of the buy at-auction orders and the buy at-auction limit orders with bid prices at or better than that price is greater than the aggregate size of the sell at-auction orders and the sell at-auction limit orders with ask prices at or better than that price; or (b) the lowest of such prices if in relation to each and every of such prices, the aggregate size of the buy at-auction orders and the buy at-auction limit orders with bid prices at or better than that price is smaller than the aggregate size of the sell at-auction orders and the sell at-auction limit orders with ask prices at or better than that price; (iv) if more than one price satisfies this rule, the IEP will be the price closest to the previous closing price. If two prices are equidistant from the previous closing price, the IEP will be the higher of the two prices. However, if the previous closing price is not available, the IEP shall be the highest of these prices. If no IEP is calculated, no order will be matched during the order matching period of the Pre-opening Session. This can occur when there are only at-auction orders on both sides, or only at-auction limit orders on one side and at-auction orders on the other side, or at-auction limit orders on both sides but the highest bid price of the buy at-auction limit orders is lower than the lowest ask price of the sell at-auction limit orders. IEV is the number of shares that can be matched at the IEP.

5 7. Are there any examples for IEP calculation and order matching mechanism for the Pre-opening Session? Following examples illustrates the calculation of IEP and order matching mechanism during the Pre-opening Session. Example 1 The table below shows all orders in the order book at the commencement of order matching period, sorted in the sequence of matching priority: BID ASK Broker Time Volume Price Price Volume Time Broker A 09:05 2,000 At-auction ,000 09:01 P B 09:00 1, ,000 09:10 Q C 09:11 8, ,000 09:05 M D 09:02 6, ,000 09:13 N E 09:10 3, ,000 09:14 O F 09:14 2, ,000 09:12 K G 09:13 2, ,000 09:13 L ,000 09:01 H ,000 09:08 I ,000 09:12 J In general, the IEP shall be one of the bid prices or ask prices which falls at or within the range of the Highest Bid Price and the Lowest Ask Price and results in maximum matched shares. Therefore, the IEP is determined to be $ Possible IEP Acc. Bid Qty Acc. Ask Qty Matched Shares ,000 26,000 11, ,000 10,000 10,000 During the order matching period, the following trades are generated. Buying Broker Trades Generated Selling Broker A 2,000@32.00 P B 1,000@32.00 Q C 7,000@32.00 Q C 1,000@32.00 M After completion of order matching, the following unfilled at-auction limit orders would be carried forward to the Continuous Trading Session. BID ASK Broker Time Volume Price Price Volume Time Broker D 09:02 6, ,000 09:05 M E 09:10 3, ,000 09:13 N F 09:14 2, ,000 09:14 O

6 G 09:13 2, ,000 09:12 K ,000 09:13 L ,000 09:01 H ,000 09:08 I ,000 09:12 J Example 2 Assuming that the following orders are entered during the Order Input Period: BID ASK Broker Time Volume Price Broker Time Volume Price A 09:06 1, D 09:09 2, B 09:02 5, E 09:08 3, C 09:12 2, F 09:03 2, G 09:10 2, 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. Bid Qty Acc. Ask Qty Matched Shares ,000 9,000 1, ,000 5,000 5, ,000 2,000 2,000 A broker, who wants to match the surplus at IEP or is of the view that the IEP is on the high side can enter an ask at-auction order of 1,000 shares or more. Assuming Broker H enters an ask at-auction order of 5,000 shares during the Pre-order Matching Period and the order book is as follow: BID ASK Broker Time Volume Price Broker Time Volume Price A 09:06 1, H 09:16 5,000 at-auction order B 09:02 5, D 09:09 2, C 09:12 2, E 09:08 3, F 09:03 2, G 09:40 2, 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 ,000 14,000 1, ,000 10,000 6, ,000 7,000 7,000 If another broker I is of the view that the IEP is low and enters a bid at-auction order of 10,000 shares. The order book is as follow:

7 BID ASK Broker Time Volume Price Broker Time Volume Price I 09:18 10,000 at auction H 09:16 5,000 at-auction order order A 09:06 1, D 09:09 2, B 09:02 5, E 09:08 3, C 09:12 2, F 09:03 2, G 09:10 2, 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 the pre-order matching period, it can avoid significant change in the IEP. Possible IEP Acc. Bid Qty Acc. Ask Qty Matched Shares ,000 14,000 11, ,000 10,000 10, ,000 7,000 7, Will the information of IEP and IEV be disseminated during the Pre-opening Session? Both IEP and IEV will be disseminated to Exchange Participants and information vendors during the Pre-opening Session. 9. What are the purposes of only allowing input of at-auction order during the pre-order matching period of the Pre-opening Session? During the pre-order matching period, order cancellation and modification are not allowed. This avoids significant change in the IEP by removing orders immediately before the commencement of the order matching period. It also provides a mechanism to adjust the IEP to a fair market price while attracting more at-auction orders input during this period. 10. What are the differences in the trading mechanism of Pre-opening Session and that of the Continuous Trading Session? During the Continuous Trading Session, orders will be matched continuously and automatically by AMS/3 when the specified prices of buy orders and sell orders match. Only limit orders, enhanced limit orders and special limit orders will be

8 accepted during this period. During the Pre-opening Session, order input and order matching will be organised into two distinct processes:- (1) During the order input period of the Pre-opening Session, only at-auction orders and at-auction limit orders will be accepted and during the pre-order matching period of the Pre-opening Session, only at-auction orders will be accepted. These orders will be accumulated and updated but no matching will occur during these periods. (2) During the order matching period of the Pre-opening Session, orders accumulated during the order input period and the pre-order matching period of the Pre-opening Session will be matched in order type (at-auction orders carry a higher matching priority), price and time priority, at the final IEP. 11. What are the differences for information disseminated during the Pre-opening Session and the Continuous Trading Session? The information disseminated during the Pre-opening Session and the Continuous Trading Session is basically the same, except for the following: Nominal price During the Pre-opening Session, the nominal price of an issue of securities will be equal to the IEP (if the IEP is available) or the previous closing price (if the IEP is not available) of the issue. During the Continuous Trading Session, the nominal price of a security determined by comparing the current bid price, current ask price and last recorded price / previous closing price, as the case may be of the security. Best bid /ask prices During the Pre-opening Session, the best bid price and best ask price means the IEP or, if the IEP is not available, the most competitive prices on the corresponding side (i.e. buying or selling). During the Continuous Trading Session, the best bid price means the highest bid price and the best ask price means the lowest ask price.

9 Primary queue During the Pre-opening Session, the primary queue means the queue of at-auction orders and at-auction limit orders with a specified price at or more competitive than the IEP. In case of buying, the specified price equals or is higher than the IEP; and in case of selling, the specified price equals or is lower than the IEP. If the IEP is unavailable, the primary queue is the queue of at-auction limit orders with the most competitive specified price, in the case of buying, the best bid price, and in case of selling, the best ask price. During the Continuous Trading Session, the primary queue is the queue of orders with the most competitive specified price, the best bid price for buying, or in case of selling, the best ask price. 12. Will the Morning Trading Session commence if no IEP is determined in the Pre-opening Session? The Pre-opening Session is an additional trading session which serves to determine a fair opening price of each security and reduce the loading of the System from the large number of order inputs and trade execution messages at the commencement of the Morning Trading Session. However, it is not a prerequisite for the commencement of the Morning Trading Session which will start as usual even if there is no IEP. 13. If, for whatever reason, the trading cannot commence at 9:00 a.m., will there be any Pre-opening Session on that day? No, the Pre-opening Session will at 9:00 am or be cancelled. If there is no Pre-opening Session, Continuous Trading will commence as usual. 14. If only a Pre-opening Session takes place, will that day be counted as a trading day? Yes, it will be counted as a trading day even if there is only a Pre-opening Session but no Continuous Trading Session.

10 15. Is short selling permitted during the Pre-opening Session? Short selling will not initially be allowed during the Pre-opening Session. It will be subject to market response and further review.