Closing auction might make a comeback

Hong Kong Exchanges & Clearing Ltd might resurrect a controversial practice suspended since 2009.

The operator of the Hong Kong’s stock exchange is reported to be mulling a return of the closing auction process for equities. Chief operating officer Gerald Greiner said the move was being considered to cool down price swings.

“It’s clear to most of us here that we need to come up with a better mouse trap, a new way to do a closing auction, because we really do need one,” Greiner said. “We need to cover all the concerns there were with the old one.”

Of the world’s10 largest stock markets, only by Hong Kong and Shanghai prohibit the closing auction process that could volatility and limit manipulation. Other stock exchanges use auctions to set closing prices by pooling share orders and finding the level at which the most can be matched.

HKEx banned the auctions in March 2009 after large transactions at the end of the day spurred concern of price manipulation.

Some analysts said HKEx is flirting with the auction’s return to regain its ranking as the world’s biggest bourse operator. It lost this rankingto CME Group Inc., the world's largest future exchange that also owns the Dow Jones stock and financial indexes, and CME Clearing Services, which provides settlement and clearing of exchange trades.

Independent Hong Kong brokers oppose the auctions, claiming they are a manipulation tool for bigger players, said Francis Lun, chairman of the Hong Kong Institute of Financial Analysts.