MARKET REFORM TAKES EFFECT SEPT 23

18-6-2024

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Maintaining trading under severe weather conditions is a key step in enhancing the competitiveness of Hong Kong's market. This reform, being one of the policy initiatives set out in the Policy Address and the Budget as well as a recommendation made by the Task Force on Enhancing Stock Market Liquidity, has won overwhelming support from the financial sector. Following the announcement made by the Chief Executive this morning, I held a press conference with representatives from Hong Kong Exchanges & Clearing (HKEX), the Securities & Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA), during which I introduced the conclusions and proposals drawn up in the wake of the earlier consultation. In this blog article, I would like to further elaborate the ideas and key points behind the proposals.

I. Why maintain trading under severe weather?

Since 2018, severe weather conditions have caused market closure in Hong Kong on 11 occasions, four of which occurred in 2023, lasting from a few hours to a whole trading day. As an international financial centre, Hong Kong is bound to serve the interests of all local, Mainland and international enterprises and investors. One market closure caused by local weather conditions is too many! From the perspective of the actual market, market closure undermines the price discovery function of the market, and makes it difficult for investors to trade in Hong Kong in response to the latest global market developments. If the market closure falls on a rebalancing date for major equity indexes, it will even affect institutional investors in making corresponding transactions for position adjustment, leading to tracking errors, which in turn may hamper the performance of the tracking indexes.

In order to improve the efficiency of the financing platforms, develop further channels for mutual market access, as well as enrich our portfolio of securities and derivatives in a sustainable and effective manner, we need to keep enhancing our competitiveness and prevent Hong Kong from becoming one of the very few places in the world which suspends market trading due to local weather conditions. All stakeholders should work together and show determination to push ahead the enhancement of institutional infrastructure of the financial market, remove uncertainties that affect trading and price discovery, and ensure that Hong Kong shoulders its due responsibilities as the country's international financial centre. Our policy direction, therefore, is to carry out the reform across the board (covering the securities and derivatives markets, including northbound and southbound trading under Stock Connect) and as soon as possible (taking effect from September 23, 2024).

II. How to implement the relevant arrangements?

From the perspective of investors, market operations will become more predictable upon implementation of the new arrangements. Normal trading will be carried out according to the original trading calendar regardless of weather conditions. As far as the implementation arrangements for the proposals are concerned, personal safety is a major concern. As such, the financial sector should draw on the work-from-home experience gained during the pandemic and consider technology solutions that are widely available in the market in adjusting their internal operations for full adoption of remote working under severe weather conditions. In this connection, HKEX will help to match securities dealers in need of technology solutions for remote working with relevant suppliers, and provide technical support and advice.

To tie in with the implementation of the proposals, the banking industry, under the co-ordination of the Hong Kong Association of Banks and Hong Kong Interbank Clearing, has confirmed that relevant banking services will operate as usual during severe weather conditions. Among them, e-cheque clearing and electronic money transfer services will be provided by designated banks and settlement banks of relevant clearing houses as normal to fully support clearing participants' operations and meet their clearing obligations. In addition, the HKMA will today issue a circular reminding banks to earmark sufficient resources to maintain the provision of electronic banking and money transfer services, and render appropriate assistance to securities brokers in implementing the relevant proposals. Market participants and investors should consider in advance the banking services required to ensure that the electronic money transfer arrangements and limits can meet their operational and investment needs.

III. When to implement the relevant arrangements?

After a comprehensive assessment of the actual conditions of various stakeholders by HKEX and financial regulators, it is reckoned that a three-month preparation period is suitable for the market, allowing participants to get ready for the implementation arrangements. Hence, we have decided that the measures will be implemented starting from September 23 (Monday). Prior to the implementation, HKEX will arrange market-wide testing while the SFC will issue circulars to market participants to ensure that they are apprised of the expected requirements regarding customer communication and business operation under the arrangements.

At present, there are over 500 exchange participants operating in the Hong Kong market. We are well aware that some small and medium brokerage firms may need more time to arrange remote working for all staff. In case brokerage firms need to assign staff to report for duty at the workplace under severe weather conditions, they should, just like other sectors do, refer to the Code of Practice in Times of Adverse Weather & "Extreme Conditions" published by the Labour Department, and work out the relevant arrangements with the staff concerned. In this regard, employers should make preparations with reference to the relevant codes of practice to assess the number of skeleton staff, work arrangements and supporting measures (such as transportation arrangements, food and drinking water) required during the work period. They should also consider whether it is necessary to take out additional insurance coverage in addition to compliance with relevant statutory requirements. On the premise of personal safety, employers may discuss with the designated staff concerned about returning to the workplace in advance outside working hours for standby duties before Tropical Cyclone Warning Signal No. 8/Black Rainstorm Warning Signal is issued when public transport is still available, and remaining in the office until it is safe to leave after the relevant signal is cancelled. Employers should, as early as possible, discuss with the staff concerned about the feasibility of such duty arrangements, including obtaining consent from staff for amending their employment contracts as and when necessary. Suggested measures and the relevant preparation to be taken prior to implementing the new arrangements are detailed in the consultation conclusions published today.

In addition, to support small and medium brokerage firms in preparing for the implementation of the proposals, HKEX will, until the end of the year, settle any outstanding payment obligations on severe weather trading days on behalf of any individual eligible brokerage firms that fail in the short term to meet the clearing requirements on such trading days under exceptional circumstances. Brokerage firms adopting this measure will not be allowed to participate in trading under severe weather, and they will be required to pay all outstanding money timely after the days of severe weather. Furthermore, the SFC will also issue guidelines on matters of attention for brokerage firms to follow in implementing the arrangements, so that the industry can maintain normal operation while protecting their clients' interests. Brokerage firms may refer to the circulars issued by the SFC for specific details of the proposals.

Secretary for Financial Services & the Treasury Christopher Hui wrote this article and posted it on his blog on June 18.




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