Call Auction Mechanism and Closing Price Manipulation: Evidence from the Hong Kong Stock Exchange

Intraday analysis of regulation change in microstructure: evidence from an emerging market

“…It was found that as small stocks move from call auction to continuous trading, these stocks experience an increase in volume and liquidity. Chang et al (2020) (Park, Suen, & Wan, 2019). This study found that closing call auctions seem to pave the way for closing price manipulation.…”

“…Although Hong Kong Stock Exchange implemented a closing call auction in 2008, it was abandoned after 10 months (Park et al , 2019). This study found that closing call auctions seem to pave the way for closing price manipulation.…”

Market abuse under different close price determination mechanisms: A European case

“…For example, in the Australian stock exchange the CCAM increased endof-day activity with arbitrageurs and fund managers influencing the close price (Aitken et al, 2005). In addition and for the cases of India (Camilleri & Green, 2009), Hong Kong (Park et al, 2019;Suen & Wan, 2013) and a worldwide sample of twelve exchanges (Comerton-Forde & Rydge, 2006) suspensions of the CCAM increased liquidity, reduced volatility and increased closing price manipulation of illiquid stocks. To the defense of CCAMs, it has been noted that it is not the implementation of the mechanism per se that deters closing price manipulation but specific anti-manipulation attributes that plain-vanilla variants of the CCAMs typically lack (Comerton-Forde & Rydge, 2006;Park et al, 2019).…”

“…Certain attributes, such as transparency and volatility interrupters allow investors to reevaluate their strategy when there is a price shock, which may affect the existence of closing price manipulation. Even subtle changes in the CCAM attributes (i.e., randomized closing time) may have a substantial effect in deterring closing price manipulation (Camilleri & Green, 2009;Park et al, 2019). Randomization of the closing auction increases the uncertainty of the exact auction duration; thus making closing price manipulation attempts more costly (Cordi et al, 2017;Malaga et al, 2010).…”

Reexamining the impact of closing call auction on market quality: A natural experiment from the Shanghai stock exchange

“…It was not until 2016 that HKEx introduced an improved version of the closing call auction system and gradually expanded the range of pilot stocks over the next few years in a careful manner. Park et al (2020) Aitken et al (2005) study the impact of the closing call auction system on the Australian Stock Exchange in 1997. Under the system, the closing price is set to be the volume-weighted average price (VWAP) based on the last two transaction prices, and no indicative price is provided throughout the closing period.…”