HSBC Holdings said Tuesday a huge drop in its shares late Monday was caused by a "few trades" as investors decide whether to put money into a massive rights issue. Hong Kong's financial secretary John Tsang also said the government is concerned about HSBC's sharp losses and that he had already met with SFC officials to discuss the issue. Hong Kong Exchanges & Clearing Ltd. may also accelerate the implementation of a 2 percent cap on stock fluctuations during so-called closing auction sessions.
Original System:
The closing auction process, used by the exchange since May last year, has attracted criticism from lawmakers and investors who claim it distorts stock pricing. The session extends trading by 10 minutes from the original 4 p.m. local time close, during which buy and sell orders are matched by an auction trading mechanism. The sessions are an international practice aimed at providing a “fair and market-driven method” to determine closing stock prices.
Example:
Four days after the closing auction was introduced, eight stocks moved by more than 10 percent from the last traded price at 4 p.m., which Hong Kong Exchanges said was due to a rebalancing of MSCI Barra indexes.
New Rule:
Hong Kong Exchanges said March 5 that it planned to implement a 2 percent limit on the changes of stock prices within the auctions on June 22.
Back to HSBC:
HSBC’s 24 percent tumble yesterday wasn’t the result of “panic selling, it was technical trades”. The shares rallied 15 percent today. The stock, the second-largest constituent on the benchmark Hang Seng Index, fell more than 10 percent during the closing auction session, dragging the shares to the lowest since May 1995. The shares rallied 15 percent today to HK$37.80.
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