HKGX conducts trading in the trading hall through an open outcry system, which is the traditional trading method of Hong Kong's gold market. Representatives of Exchange participants conduct trades in the trading hall using Cantonese outcry, supplemented by hand signals. After a trade is made between buyers and sellers, within fifteen minutes, the selling party is responsible for filling out the trading slip. After confirmation by the buying party, it is then submitted to the Exchange for trade registration and updating of each Exchange participant's positions and obligations to control risk.
Mon - Fri
All contract trades conducted through "open outcry" in the Exchange trading hall require both buyers and sellers to pay transaction fees to the Hong Kong Gold Exchange for each contract.
HKGX is a market that combines spot and futures trading. While it allows for spot delivery, it also enables deferred settlement through the payment of oer diem, thus creating futures functionality. Per Diem are publicly negotiated in the market at specified times. Exchange participants interested in taking physical delivery of gold bars register on the board separately. The per diem is determined by spot supply and demand, as well as the Hong Kong dollar interest rates.
Monday to Friday
At such times, Members wishing to settle spot gold can register their deals on board; the per diem of the day is determined by reference to the supply of and demand for physical gold and Hong Kong Dollar Interest Rates of the day If the demand for spot gold outstrips the supply of it, buyers are entitled to receive per diem as compensation from sellers who ask to defer the delivery of gold. In other words, sellers (short position holders) pay per diem to buyers (long position holders). In industry jargon, this is called “high interest” or “plus per diem”.
By the same token, if supply of spot gold outstrips the demand for it, it means a greater demand for cashing-out. Those buyers who ask to defer delivery of gold will pay per diem to sellers. It is a scenario of “low interest” or “low per diem”. If the amount of gold confirmed for delivery is equal to the amount of gold confirmed for receipt, and both sellers and buyers comes to an agreement, the per diem will be determined. In a scenario that neither the buyers nor the sellers pay per diem, it is called “flat interest”.
To prevent manipulation of per diem, HKGX has set up a five-tier mechanism to regulate the movement of per diem by setting the upper limit and the lower limit. When the disequilibrium persists in the delivery and receipt of spot gold, the regulatory mechanism will be triggered. Once the per diem touches the upper limit of the tier, it must remain there for three days (Included Saturday, Sunday and Holiday) before moving up the next tier.
The maximum per diem at each tier (calculated per HK$1,000 of the benchmark prices) Limits for premium at each level
Physical delivery of gold is to be arranged by members themselves and exchange will play no part in the process. 99 Tael Gold and HK Kilo Gold traded on HKGX are subject to an accredited delivery system. Only gold bars manufactured by HKGX-accredited refineries (as stated in the name list of accredited refineries) are deliverable in the market. In addition to HKGX’s Members, Non-Members are allowed to deliver their gold bars as long as they submit evidences to prove their technologies and quality control capabilities, and comply with the requirements of Trade Descriptions Ordinance. These refineries may make application to HKGX for accreditation. Upon vetting and approval by HKGX, they shall become accredited refineries and their gold bars can be used for market delivery.
At the end of a trading session. HKGX will carry out intermediary settlement of all transactions, and forward the settlement result to a designated settlement bank. Prices used for the purpose of settlement are determined at the following times:
Monday to Friday
Benchmark prices are based on the market price at time of determination. For 99 Tael Gold, it is rounded up to the nearest five dollars. For HK Kilo Gold, it is rounded up to the nearest 5 cents. Members will need to reconcile their contract prices with benchmark prices, book the differences in their respective accounts, and settle any gain/loss with HKGX.
To facilitate settlement, all trading members must open an account at the same designated bank. All transactions done in the morning session are fully settled by the afternoon, and those completed in the afternoon session are settled in the evening.
HKGX manages risks through two measures. The first is the implementation of margin system. At present, each Member has a margin-free credit limit of 1,500 taels troy or 50 kilograms. No margin is payable if the Members trade within this limit. When trading beyond this limit, Members will have to pay a margin: HK$100,000 for every 100 taels troy of gold and HK$28,000 for every 1 kilogram of gold.
To guard against risk, the Executive & Supervisory Committee may, in the light of price volatility, adjust the chargeable weights of gold and the margins at any time. During the bullish run in the early 1980's, margin for every 100 taels troy of gold surged to HK$160,000. Thanks to this mechanism, HKGX has sailed through many challenging times of the gold market over the years.
Another risk management measure is "Discount Circuit Breaker". Under our constitution, when the spread between current price of gold and benchmark price at previous trading session amounts to HK$1,000 per tael troy for 99 Tael Gold (or HK$28 per gram for HK Kilo Gold), price discounting becomes necessary. Under prevailing margin, HKGX will invoke price discounting if the current price rises to HK$11,000 or drops to HK$9,000 prior to the determination of benchmark price, and the listed benchmark price is HK$10,000. This is similar to the limit up or limit down mechanism in other markets. Subsequent to the announcement by the Executive and Supervisory Committee of the exercise of “Discount Circuit Breaker”, HKGX will declare the suspension of trading. A discounted price will be determined as an benchmark price, and Members must forthwith register their deals on board to settle spot gold and fix a per diem. The price of all transactions will be discounted at settlement price; spot gold will be delivered and settled based upon benchmark price. Once this measure is taken, trading in HKGX cannot resume until the passage of two trading sessions.
Any other necessary or desirable measures deemed appropriate by the Board or Market Operations Committee to maintain market order.