Conclusion of Incident Review: Derivatives Market Suspension on 5 September 2019

Hong Kong Exchanges and Clearing Limited (HKEX) plays a key role in supporting and enabling the resiliency and sustainable development of Hong Kong’s financial markets. Following trading suspension of the derivatives market on 5 September 2019 (the Incident), HKEX has today (Monday) published a Public Report of the Incident, which includes details on a range of enhancements to our processes, procedures and communications.

HKEX has completed its review of the Incident, and has taken into consideration feedback and recommendations from the Securities and Futures Commission (SFC) and an independent consultant, as well as feedback from market participants and key stakeholders. This valuable engagement has resulted in enhancement measures being put in place focusing in particular on incident prevention, detection and handling, mitigation of incident impact, and communication during incidents. The measures will provide greater support to Exchange Participants (EPs), investors and other stakeholders in the event of future incidents. The measures will also help enhance HKEX’s decision-making process during market incidents, with additional guidelines and procedures, improved system detection and preventative tools.

HKEX will continue to commit its resources to achieve its goal of operating a highly resilient, fair, informed and orderly market. A full copy of the report can be read here.

THE INCIDENT

On 5 September 2019, from around 9:27 am onwards, a number of EP connections to HKATS were interrupted. The connection issues deteriorated gradually as the morning trading session progressed, and was subsequently identified to have been caused by an erroneous logic in a vendor-supplied Matching Engine (ME) partition that led to disconnections. Following confirmations from a majority of our futures and options EPs that their systems were not operating normally due to disconnections, and from our software vendor that the affected ME Partition was unresponsive with no immediate resolution option, HKEX suspended trading in the futures and options markets from 2:00pm for the afternoon trading session and the After-Hours trading session. After successful testing and verification of the interim solution recommended by the software vendor, trading resumed successfully in the derivatives market on 6 September 2019.

KEY ENHANCEMENTS INTRODUCED

Following a full review of the Incident, HKEX has introduced a number of new measures and enhancements to systems and processes, which will provide better risk management, oversight and communication in the event of future incidents. In particular, enhancements have focused on: 

  • Incident prevention: preventive measures for major market incidents that may lead to trading suspension;
  • Incident detection & system monitoring: detection of potential system issues through enhanced system monitoring;
  • Incident handling: assessment protocol for decision making to determine whether derivatives market trading should be suspended;
  • Mitigation of incident impact: risk assessment and management, in particular in relation to major market incidents; and
  • Communication: timely communication of key developments to the market during major market incidents, including via market news releases and through other channels such as website / social media.

The detailed enhancement measures are set out in the Public Report.

HKEX believes that the enhancement measures implemented will further strengthen the resiliency, efficiency and risk mitigation of Hong Kong’s financial markets. HKEX remains wholly committed to the long-term success of Hong Kong as a leading global financial market.

 

 

About HKEX

Hong Kong Exchanges and Clearing Limited (HKEX) is one of the world’s major exchange groups, and operates a range of equity, commodity, fixed income and currency markets.  HKEX is the world’s leading IPO market and as Hong Kong’s only securities and derivatives exchange and sole operator of its clearing houses, it is uniquely placed to offer regional and international investors access to Asia’s most vibrant markets.

HKEX is also the global leader in metals trading, through its wholly owned subsidiaries, The London Metal Exchange (LME) and LME Clear Limited.  This commodity franchise was further enhanced with the launch of Qianhai Mercantile Exchange (QME), in China, in 2018.

HKEX launched the pioneering Shanghai-Hong Kong Stock Connect programme in 2014, further expanded with the launch of Shenzhen Connect in 2016, and the launch of Bond Connect in 2017.

www.hkexgroup.com

 

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