The Hong Kong Exchanges and Clearing Limited (HKEX) has recently introduced a market making initiative for the new HKD-RMB Dual Counter Model. This initiative is aimed at enhancing liquidity and promoting trading activities in the Hong Kong market.
The HKD-RMB Dual Counter Model was launched in August 2018, allowing investors to trade in both Hong Kong dollars and Chinese yuan on a single platform. This model has been well-received by investors, as it provides them with greater flexibility and convenience in trading between the two currencies.
However, one of the challenges of this model is the lack of liquidity, which can result in wider bid-ask spreads and higher transaction costs. To address this issue, HKEX has introduced a market making initiative, which involves designated market makers (DMMs) providing continuous quotes for selected securities on the platform.
DMMs are responsible for maintaining an orderly market by providing liquidity and narrowing bid-ask spreads. They do this by quoting both a buy and sell price for a security, which allows investors to trade at a fair price. DMMs also monitor market conditions and adjust their quotes accordingly to ensure that they are providing the best possible prices.
Under the market making initiative, HKEX has appointed six DMMs to provide liquidity for 10 selected securities on the HKD-RMB Dual Counter Model. These securities include exchange-traded funds (ETFs), real estate investment trusts (REITs), and blue-chip stocks listed in Hong Kong.
The DMMs will be required to provide continuous quotes during trading hours, with a minimum quote size of HKD 100,000 or RMB 100,000. They will also be required to maintain a certain level of inventory for each security, to ensure that they can meet investor demand.
The market making initiative is expected to benefit both investors and issuers. For investors, it will provide greater liquidity and tighter bid-ask spreads, which will result in lower transaction costs. For issuers, it will enhance the visibility and trading activity of their securities, which can lead to increased demand and liquidity.
In addition to the market making initiative, HKEX has also introduced other measures to enhance liquidity on the HKD-RMB Dual Counter Model. These include the introduction of a market maker incentive scheme, which rewards DMMs for providing liquidity, and the expansion of the model to include more securities.
Overall, the market making initiative is a positive development for the HKD-RMB Dual Counter Model, as it addresses one of the key challenges of the platform. With greater liquidity and tighter bid-ask spreads, investors can trade with greater confidence and efficiency, while issuers can benefit from increased visibility and demand for their securities.
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- Source: Plato Data Intelligence.