A look at Hong Kong’s weather-related trading hurdles
Hong Kong is one of the few major financial hubs in the world that halts trading due to extreme weather.
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The backstory: Hong Kong's initial public offering (IPO) market has been a global hotspot for some time now. Many major players around the world look to Hong Kong to take their companies public. Its stock exchange is also home to some major companies like Tencent, Alibaba, Ping An, Meituan and more. The city aims to become a global financial hub, which it’s been making bold moves to achieve since opening back up post-pandemic.
But Hong Kong is no stranger to typhoons, thanks to its location in the South China Sea with warm sea temperatures. It's right smack in the middle of typhoon-prone areas. So, when a Typhoon Signal No. 8 or higher is issued, the Hong Kong Stock Exchange (HKEX) pauses its morning trading session. If things clear up before noon, it’ll resume trading in the afternoon. But if the typhoon sticks around, they call it a day, leaving the markets closed. This has been the routine for years. It's worth noting that Hong Kong is one of the few major financial hubs in the world that halts trading due to extreme weather.
More recently: September in Hong Kong was a wild ride weather-wise. First, there was Cyclone Saola, the second most intense in the South China Sea since 1950, triggering the highest-level typhoon warning, a rare event since 2018. Then came the relentless heavy rain, leading to a record-breaking 16 hours and 35 minutes of a Black rainstorm warning. Last month, the financial markets had to shut down two Fridays in a row due to a double whammy of typhoons and rainstorms. And there's another cyclone on the horizon expected to near Hong Kong this weekend, Koinu.
On top of that, the Hong Kong market has been kind of gloomy lately, with the Hang Seng Index slumping 8.5% in August and the IPO market hitting a 20-year low this year.
The development: Investors and businesses in Hong Kong are pretty over all the market shutdowns due to inclement weather, and a task force has been looking into ways to keep the markets open during typhoons. Recently, Financial Secretary Paul Chan reportedly set a timeline for this group, composed of officials from the stock exchange, regulators and local financial institutions, to work and submit a realistic plan. This comes as insiders, who prefer to stay anonymous, said it seemed there wasn’t much progress in those discussions over the past few months.
If this group can come up with a plan quickly, Chief Executive John Lee might address this issue in his annual policy speech on October 25, as insiders suggest.
But there are hurdles to overcome. According to insiders, a big concern is how to handle margin obligations to the HKEX. Smaller financial institutions may struggle to operate during severe storms, potentially leaving them unable to meet margin calls on extreme weather days.
The Securities and Futures Commission and the Hong Kong Monetary Authority are backing the idea of trading during severe weather, and they're collaborating with the government, the exchange, the SFC and the banking industry to create a detailed proposal on how to move things forward.
Key comments:
“HKEX is committed to continuously enhancing the attractiveness of our markets,” said a spokesperson. “As part of that commitment, we are currently actively looking at severe weather trading arrangements, working with the HKSAR Government and Hong Kong regulators.”
“In terms of extreme weather, September was an eventful month in Hong Kong with an all-time high rainfall of 1,067.1mm – more than three times the September norm,” said the Hong Kong Observatory.
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