Hong Kong Futures Exchange Limited
Migration of Trading of Hang Seng Index Futures and Options Contracts to the Automated Trading System


This paper has been prepared by the Hong Kong Futures Exchange ("Exchange") at the request of the Financial Services Bureau of the Government of the Hong Kong Special Administrative Region for discussion by the Provisional Legislative Council Panel on Financial Affairs at a meeting to be held on 2 March 1998.


In April 1997, the Board of Directors, in consideration of future business plans for the Exchange, decided that all new futures and/or options contracts introduced on the Exchange would be traded on the Automated Trading System ("ATS"). Further, the Board articulated its vision that the Exchange should migrate the trading of Hang Seng Index ("HSI") futures and options contracts from the open outcry environment to ATS when conditions were perceived to be correct.

In making such decision the Board was cognizant of the fact that no exchange in the world had attempted to move the trading of a high volume established futures and/or options contract from open outcry to electronic order matching or vice versa. Thus, the Board had no historical precedent upon which to evaluate how trading of HSI futures and options products would be affected by a change in their trading environment. Consequently, the Board felt that further study of the acceptability by Members and their clients of the ATS environment was necessary before a final decision to migrate the HSI futures and options products was taken.

Thereafter, in September 1997 the Exchange introduced trading of Red-Chip futures and options on ATS. The introduction of the Red-Chip products on ATS provided the Exchange with information and insight as to the acceptability of electronic order matching of equity index based futures and options trading in its market. Based on such information and insight the Board, in December 1997, decided that it was the appropriate time to commence the process to migrate the HSI futures and options products to ATS and initiated a survey of the membership to confirm its decision.

The Exchange's survey of its 118 Members who were actively trading HSI futures and options contracts in December 1997, asked Members if they agreed with the Board's view that the Exchange should take immediate steps to prepare for the migration of the HSI futures and options products from the open outcry system used on the trading floor to electronic order matching on ATS. One hundred thirteen (113) Members responded to the survey with 86 Members agreeing and 27 Members disagreeing with the Board's view.

In January 1998, following the completion of the survey, the Board re-confirmed its decision to migrate trading of the HSI futures and options products to ATS and the membership and public were advised the migration process was scheduled to be completed in 18 to 24 months.

Requirements for Migrating HSI Futures and Options to ATS

The conversion into a fully electronic market place will require an estimated capital investment by the Exchange in excess HK$100 million. Further, it is estimated that a similar investment will be required by the Exchange's membership to upgrade their respective dealing rooms, systems and electronics equipment.

In summary, the Exchange's migration plan calls for:

  • construction of a new primary data-center;

  • expansion of the back-up data center;

  • upgrading of the primary and back-up ATS computer systems to alpha;

  • expansion of the ATS communications network from 73 Members to all 120 Members;

  • upgrading the primary communication network;

  • installation of a back-up communication network;

  • construction of a new ATS dealing center;

  • installation and testing of two (2) major upgrades of the ATS operating software;

  • development of additional system to enhance market surveillance;

  • development of a fully automated settlement system;

  • installation of approximately 200 additional ATS dealing terminals in Members’ offices, and;

  • training of an additional 300 to 500 employees of Members in the operation of ATS.