Stock Market Movement Explained In HK

by Mary Swire, for LawAndTax-News.com, Hong Kong

03 June 2008

Hong Kong Exchanges & Clearing Chief Executive, Paul Chow, on Monday attributed the sudden surge in transaction volume and price movement on 30th May to the MSCI rebalancing.

Mr Chow told the media this week that more than 95% of turnover value during Friday's Closing Auction Session came from the 167 stocks affected by the rebalancing, resulting in at least $30bn in fund flow from passive funds tracking the relevant MSCI indices. He added that a lot of rebalancing-related transactions were executed during the session to avoid index tracking error.

The turnover value of other stocks involved in the session appeared normal compared with the previous four trading days after the session was implemented on 19th May, he continued, revealing that a wide range of investors had taken part.

Stressing the closing auction session is an international practice and was introduced after overwhelming support in a public consultation. Mr Chow added that HKEx had reminded stockbrokers about the closing auction features and the MSCI rebalancing.

He concluded by announcing that although there are no mechanisms guaranteed to prevent market manipulation, a closing auction session is a significant deterrent as the costs and risks for potential manipulators will become higher with it in place.

Mr Chow he also warned that HKEx will refer cases of suspected manipulation to the authorities for prosecution.

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