What is the Volatility Control Mechanism (VCM)?

The Volatility Control Mechanism is designed to prevent extreme price volatility from trading incidents such as a “flash crash” and algorithm errors, and to address systemic risks from the inter-connectedness of securities and derivatives markets. Many international exchanges have implemented some form of VCM. In the case of HKEX’s VCM, if the price deviates more than a predefined percentage within a specific time frame, it will trigger a cooling-off period for five minutes. This provides a window allowing market participants to reassess their strategies, if necessary. It also helps to re-establish an orderly market during volatile market situations.

What is the applicable period for VCM?

VCM is applicable to continuous trading session (CTS), excluding:

• the first 15 minutes of the morning and afternoon trading session
• the last 20 minutes* of the afternoon trading session (or morning trading session on half-day trading day) 
• the After-Hours Futures Trading session in the derivatives market

*Since a cooling-off period will last for 5 minutes, the monitoring will stop 20 minutes before end of the Afternoon Session. 

Which securities and futures contracts are covered under VCM?

In the securities market, VCM covers all constituent stocks of Hang Seng Composite LargeCap, MidCap and SmallCap Indexes, SPAC Shares, SPAC Warrants, and eligible Exchange Traded Products (ETPs).

In the derivatives market, VCM covers spot month and next calendar month contracts of the Hang Seng Index (HSI), Mini-Hang Seng Index (MHI), H-shares Index (HHI), Mini H-shares Index (MCH) and Hang Seng TECH Index (HTI) futures markets.

When the Volatility Control Mechanism, that’s equal to Trading Halt or Suspension for the related stock?

VCM is NOT a trading halt, nor is it designed to limit the ups and downs of prices of stock or futures contract due to fundamental events.

How many times of the cooling-off period will trigger per day?

There is no limitation on the number of VCM triggers per trading session for each VCM stock (i.e. Multiple triggers of a VCM stock are allowed in the morning or afternoon CTS).

What will trigger the cooling-off period?

In the securities market, VCM is triggered if a stock is ±10%, ±15% and ±20% away (for Hang Seng Composite LargeCap, MidCap and SmallCap Indexes constituent stocks respectively) from the last traded price 5-min ago; A 5-min cooling-off period will start.

In the derivatives market, VCM is triggered if a futures contract is ±5% away from the last traded price 5-min ago; A 5-min cooling-off period will start.

Can I trade when trigger the cooling-off period?

Yes. During the cooling-off period, trading is allowed within a pre-defined price band.