Hong Kong Exchanges and Clearing will put into place on August 22 its volatility control mechanism (VCM) in an effort to prevent “extreme price volatility arising from major trading errors and other unusual incidents”.
The VCM applies at the individual security level, and only to the 50 members of the Hang Seng benchmark and the 81 constituents of the Hang Seng China Enterprises index.
The move will bring Hong Kong more closely in line with other major markets around the world and the region, such as Japan, Korea and Singapore, which all have similar mechanisms in place. But it is not expected to be triggered often, nor is it the sort of market-wide circuit breaker that was infamously applied to China’s share market in the first week of January, only to be repealed four days after its introduction.