Hong Kong Stock Exchange (HKEX; SEHK: 0388)

The Hong Kong Stock Exchange (HKEX; SEHK: 0388) is the stock exchange of Hong Kong. The exchange has predominantly been the main exchange for Hong Kong where shares of listed companies are traded. It is Asia's second largest stock exchange in terms of market capitalisation, behind the Tokyo Stock Exchange. As of 31 August 2010, the Hong Kong Stock Exchange had 1,356 listed companies with a combined market capitalization of $2.3 trillion. Hong Kong Exchanges and Clearing is the holding company for the exchange.

Trading hours

The trading day consists of:

* A pre-opening auction session from 9:30 am to 9:50 am. The opening price of a security is reported shortly after 9:50 am.

* A morning continuous trading session from 10:00 am to 12:30 pm

* An afternoon continuous trading session from 2:30 pm to 4:00 pm

The closing price is reported as the median of five price snapshots taken from 3:59 to 4:00 pm every 15 seconds. In May 2008, the exchange also implemented a closing auction session to run from 4:00 pm to 4:10 pm, with a similar pricing mechanism as the opening auction; however, this resulted in significant fluctuations in the closing prices of stocks and suspicions of market manipulation. Initially, the exchange proposed limiting price fluctuations in the auction sessions to 2%; in the end, they removed the closing session entirely in March 2009.

The two-hour lunch break between the morning and afternoon sessions is the longest among the world's 20 major stock exchanges. A 2003 proposal to shorten the lunch break failed due to opposition from brokers. Another plan to shorten the lunch break to one hour was floated by the exchange in 2010; the morning session would then start earlier, run from 9:30 am to 12:00 pm, and the afternoon session from 1:00 pm to 4:00 pm, leaving the closing time the same as before. Justifications included bringing hours into line with China. Reactions from both brokers and the restaurant industry were mixed.

Electronic trading

The exchange first introduced a computer-assisted trading system on 2 April 1986.In 1993 the exchange launched the "Automatic Order Matching and Execution System" (AMS), which was replaced by the third generation system (AMS/3) in October 2000.

Regulatory role

David Webb, independent non-executive director of the Exchange since 2003, has been arguing for a super regulatory authority to assume that role as regulator, as there is inherent conflict between its commercial and regulatory roles. In the meantime, he argues for improved investor representation on the Hong Kong Stock Exchange.

In 2007, the uproar by smaller local stockbrokers over the decision by board of directors to cut minimum trading spreads for equities and warrants trading at between 25 HK cents and HK$2 caused the new board to vote to reverse the decision. The reforms were to be implemented in the first quarter, but was put back on the table following protests by brokers. Webb criticised the board for caving in to vested interests.

Trading characteristics

* It is perfectly normal for Hong Kong stocks of even well-known companies to trade at prices that correspond to less than HK$4 a share. A Hong Kong stock would not be considered a penny stock unless its price was less than about HK$ 0.50.

* Each stock has its own individual board lot size (an online broker will usually display this along with the stock price when you get a quote); purchases in amounts which are not multiples of the board lot size are done in a separate "odd lot market".

* There is a close-in-price rule for limit orders, which must be within 24 ticks of the current price. Individual brokers may impose an even stricter rule; for instance, HSBC requires limit orders to be within 10 ticks of the current price. Broker support for triggered order types such as market-if-touched orders would allow placing orders further away, which would be sent to the exchange when the price condition was established.

Largest stocks by market capitalisation

Source: Bloomberg, in billions of Hong Kong dollars, Data updated on 20 April 2010

1. PetroChina: $2,492.04

2. Industrial & Commercial Bank of China: $1,810.14

3. China Mobile: $1,584.90

4. China Construction Bank: $1,514.72

5. HSBC Holdings: $1,433.27

6. Bank of China: $1,127.57

7. Sinopec Corp: $957.57

8. China Life Insurance: $922.64

9. China Shenhua Energy: $636.23

10. CNOOC: $609.29

11. Ping An Insurance Group of China: $448.11

12. Bank of Communications: $439.83

13. Standard Chartered: $429.77

14. China Merchants Bank: $366.36

15. China Telecom: $309.16

16. Sun Hung Kai Properties: $299.51

17. Tencent Holdings: $286.53

(source:wikipedia)