HKEX’s three most actively traded equity index options - Hang Seng Index (HSI) Options, Hang Seng China Enterprises Index (HSCEI) Options and Mini-HSI Options – will be available for trading in the derivatives market after-hours trading session starting Monday.
To maintain market integrity and avoid potential extreme options price movement in the T+1 Session, a new Trading Halt Mechanism (THM) will be introduced for equity index options, which complements the Price Limit Up/Down Mechanism for futures trading in the T+1 session.
The Price Limit Up/Down Mechanism applies to Futures Trading in the T+1 Session. It is triggered when the traded price reaches the upper or lower price limit (+/-5% of the Reference Price) or the highest bid (lowest ask) of the buying (selling) queue reaches upper (lower) price limit. When the Price Limit Up/Down Mechanism is reached, a message will be broadcast in the trading system. Trades within the price limits will still be continuously matched.
THM applies to Options Trading in the T+1 Session only. THM will be triggered only when the corresponding spot month futures’ highest bid in the buying queue reaches the upper price limit, or the lowest ask in the selling queue reaches the lower price limit. Once the THM is triggered, trading of the equity index options will be suspended immediately for the rest of the T+1 Session and will resume in the following regular trading session.
The THM will not be triggered if the spot month futures price reaches its upper or lower limit but the highest bid in the buying queue/lowest ask in the selling queue does not.
Below is a comparison of the Price Limit Mechanism with the THM.
Let’s take a look at one example to understand how the THM works.
Assume the last traded price of the spot month HSI futures is 20,000 in the T session. The upper and lower price limits are calculated as follows:
HSI Spot Month Futures
1) The following cases illustrate whether the THM will be triggered when the highest bid/lowest ask of spot month HSI Futures moves towards its upper price limit:
Case 1
No trading halt will be triggered as the highest bid did not reach the upper price limit.
If there is a market buy order, the traded price of the order will be 21,000. Then the price limit of the futures will be reached; however, the options THM will not be triggered.
Case 2
No trading halt will be triggered as the highest bid did not reach the upper price limit.
Case 3
Trading halt will be triggered as the highest bid price reached the upper price limit.
2) The following cases illustrate whether the THM will be triggered when the highest bid/lowest ask of spot month HSI Futures moves towards its lower price limit:
Case 1
No trading halt will be triggered as the lowest ask did not reach the lower price limit.
If there is a market sell order, the traded price of the order will be 19,000. The price limit of the futures will be reached; however, the options THM will not be triggered.
Case 2
No trading halt will be triggered as the lowest ask did not reach the lower price limit.
Case 3
Trading halt will be triggered as the lowest ask reached the lower price limit.
