HKEx Ecosystem Forum: Technology And Market Integrity

The 20th of March saw HKEx host their annual Ecosystem Forum conference. This event brings together the exchange and the industry to talk about the latest developments in technology and services in Hong Kong.IMG_7857JPG

The conference altered its normal format slightly this year: while including a range of presentations and speeches from HKEx senior staff, there were also two panel discussions which focused on regulation and changing electronic trading patterns in Hong Kong and the wider region.

The event opened with remarks by Jonathan Leung, Senior Vice President and Head of Hosting Services at HKEx, giving an update on the latest technology being employed at the exchange. The day was mostly focused around the continuing rollout of the Orion suite of technologies being employed by the exchange. The Orion Central Gateway is one of these flagship technologies: details were shared about its support for FIX, precisely how it will function and be rolled out. The other central technology was the Orion Market Data initiative, and its move into derivatives data. These updates are coupled with the new push for the Orion Trading Platform, which the HKEx hopes will update the trading platforms used on the exchange with greater functionality and the latest technology.

The first panel of the day focused on changing regulation throughout Hong Kong and Asia, taking a broad view of the drivers behind regulation: be it retail, specific market incidents, or just the stability and integrity of the market as a whole. Underpinning this discussion is the changing answer to the question: “who is responsible when something goes wrong?” . As we have seen from the SFC’s algorithmic regulation that came into force January 1st, responsibility is being shifted much more definitely towards the buy-side and electronic trading vendors, but there was still a call for the exchange to shoulder burdens as well. The precise balance of what checks sit where is a matter for continued debate. Generally the exchange’s comments regarding circuit breakers and reinstating a closing auction in Hong Kong were well received as being steps in the right direction.

On the Orion Market Data platforms specifically, the drive is towards the customisation of the exchange’s products to specific segments of the market, breaking out products to meet specific needs of users. Latency is also being improved through faster feeds and a new messaging protocol.

One of the most widely attended sessions during the day was looking at market integrity. The HKEx announced in the session that they were closely examining the reintroduction of the closing auction in Hong Kong, and looked at the various reasons why a closing auction should be brought back, and the potential form that the auction might take. By way of international comparison, Hong Kong is the only exchange in the 23-member MSCI developed markets list without a closing auction. The exchange is expected to begin consultation in 2014.

The other area of interest in the same presentation was the introduction of circuit breakers: a contentious point with various markets in the region introducing different checks. Carried over from an earlier panel on where responsibility for trading errors sits, the exchange is looking at circuit breakers, but it would not be drawn on their precise nature. The debate is broadly around two areas; what should sit at the market level, and what should sit at the instrument level. In terms of specifics, these boil down into issues of whether the bands should be dynamic or static, what instruments should be included in their calculation, and what should happen when the bands are triggered. There are many questions around circuit breakers, but again the exchange will consult in 2014.

The second panel of the day looked at the changing nature of electronic and algorithmic trading in the region. One key development is around how the SFC’s algo regulations have changed electronic markets and technology since their introduction on January 1st. When the point was put to the panel on whether the regulations have stifled innovation, the general consensus appeared to be that the rules were too loose before, and that fewer and simpler algos might actually be a good thing on the market. The main takeaway was that technology is there to make trading better, safer, and more reliable for everyone, and regulation can back up that role.

The day was attended by over 400 market participants and combined the best new content from the exchange with a number of great keynotes and panel discussions.

The speaker presentations are now available here.

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