Market Structure, Participants and Trading Mechanisms
This domain tests how Hong Kong's cash and derivatives markets are wired together: who operates them, who may trade on them, how orders match, and how trades settle. Expect questions contrasting the SEHK cash market with the HKFE derivatives market, and testing clearing houses, order types and the charges printed on a contract note.
Market operators and clearers
HKEX is the listed holding company that owns the recognised exchange companies - SEHK for securities and HKFE for futures and options - plus three clearing houses: HKSCC (runs CCASS, settles securities on T+2), HKCC (clears HKFE futures and index options) and SEOCH (clears SEHK stock options). Both exchanges are recognised exchange companies under section 19 of the Securities and Futures Ordinance; they are front-line market operators, not statutory regulators.
Trading mechanics
- SEHK runs a pure order-driven book on AMS/3. There are no market orders: order types are limit, enhanced limit, special limit, stop, stop-limit and auction orders, priced off a spread table that widens with price.
- Sessions: pre-opening auction 09:00–09:30, continuous trading 09:30–12:00 and 13:00–16:00, closing auction 16:00–16:10.
- The Volatility Control Mechanism applies to HSI and HSCEI constituents: a 10% move from the price five minutes earlier triggers a five-minute cooling-off period with a price band, but trading is not halted.
- HKFE matches on HKATS. After-hours futures trading (17:15–03:00) covers HSI, HSCEI and Mini contracts but not stock futures.
- Short selling is allowed only in designated securities, must be covered by a stock borrow, and is subject to the tick rule and SFC reporting.
Worked example: cost of a round trip
A client buys 5,000 shares at HK$20 (HK$100,000) and sells at HK$21 (HK$105,000). Buy side: stamp duty 0.1% = HK$100; SEHK trading fee 0.00565% = HK$5.65; SFC transaction levy 0.0027% = HK$2.70; AFRC levy 0.00015% = HK$0.15. Sell side: HK$105 + HK$5.93 + HK$2.84 + HK$0.16. Statutory cost is about HK$222, so gross profit of HK$5,000 becomes roughly HK$4,778 before brokerage and spread.
Traps
- Mixing up HKCC and SEOCH - index options clear at HKCC, stock options at SEOCH.
- Assuming a market order exists; it does not.
- Believing the VCM suspends trading.
- Forgetting stamp duty applies to both sides and is rounded up to the dollar.
- Assuming any liquid stock may be short sold.