HKMA looking into how banks can help stock market function during bad weather

In decades-old practice, the Hong Kong stock market and all of the city’s 1,100 bank branches shut down during severe weather. But now the Hong Kong government is urging the local bourse to remain open during typhoons.

It, however, has no plans to order all bank branches to open too.

“There are major concerns about how brokers and their clients can handle bank transactions and cheque clearing issues when the stock market is trading but all bank branches are closed during typhoons or rainstorms,” Arthur Yuen Kwok-hang, the HKMA’s deputy CEO, said during a Legislative Council financial affairs panel meeting on Friday.

“The HKMA is working with the Securities and Futures Commission to seek ways to solve these problems.”

Hong Kong is looking at ways to enhance its appeal as the world’s fourth-largest stock market, and both Chief Executive John Lee Ka-chiu, in his policy address last month, and Financial Secretary Paul Chan Mo-po, in his budget speech in February, have called on the exchange and other regulators to study how the stock market can remain open during inclement weather.

Bourse operator Hong Kong Exchanges and Clearing (HKEX) will issue a consultation paper within this year, proposing that the local stock market continue to trade even during bad weather, instead of the current practice of suspending market trading when the typhoon No. 8 signal or above is issued, or when a black rainstorm warning signal is hoisted.

The plan to allow the stock market to open in bad weather is also part of a push to boost market turnover, and comes after Hong Kong cut the stamp duty on stock transactions – payable by buyer and seller – to 0.1 per cent from 0.13 per cent from Friday.

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The experience of stockbrokers trading US shares for clients when banks are closed in Hong Kong during typhoons could prove to be helpful, Yuen said.

“We may learn from their experience how to handle bank settlement issues.”

It will be a big risk-management issue if brokers cannot settle trades, as all banks are closed during typhoons and rainstorms, said Robert Lee Wai-wang, the lawmaker for the financial services sector and CEO of local brokerage Grand Capital Holdings. “Brokers will also be concerned about the safety of their staff going to office during typhoons.”

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A key issue that needs to be resolved is cheque clearance, Yuen said. All stock trading in Hong Kong needs to be settled two trading days after transactions are made, and many brokers and investors still use bank cheques to settle deals.

“If the market is open but all bank branches are closed, brokers cannot submit cheques for clearing, while cheques submitted before typhoons may also not be cleared,” Yuen said, adding that this might lead to them missing deadlines for settlements.

Hong Kong does have electronic banking payment systems, such as the Faster Payment System, but this has a cap of HK$1 million (US$128,245) a day, which is not enough for the largest stock transactions, so cheques might still be an important tool for settling trades, Yuen said.

Yuen and Sun Yu, chairman of industry body the Hong Kong Association of Banks, will meet the media on Friday afternoon after the regular quarterly meeting of the banking sector.