( I) Introduction

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AMS/3 Media Workshop

(I) Introduction

(II) System Overview

(III) Functions & Capacity

(IV) Preparation for Rollout

(V) Contingency Arrangements

(VI) FAQ

(VII) Questions & Answers

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(I) Introduction

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Introduction

•AMS/3 provides a reliable trading system for investors, Exchange Participants and market participants.

•AMS/3 provides a trading infrastructure which connects investors, Exchange Participants and the central markets through eCommerce facilities.

•AMS/3 can bring benefits and business opportunities to the Hong Kong securities market.

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After its full implementation, AMS/3 will bring the following benefits to investors, Exchange Participants and the market.

To Investors

• Enable investors to have access to the central market through additional channels via Exchange Participants

Place trading requests anywhere and anytime via Internet and mobile phone

Allow efficient access to trading request processing status

Benefits

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To Exchange Participants

• Increase Exchange Participants’ order throughput per trading right

• Allow improvement of operational efficiency

reduce manual work to handle investors’ trading requests, answering

enquiries about order status

better order management for traders

Benefits

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To Hong Kong

• A market accessible by global investors

contribute to the globalisation of Hong Kong securities market

strengthen Hong Kong’s position as a major international financial centre

Benefits

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To Hong Kong

• Improve the Hong Kong securities market’s competitiveness

higher market accessibility and trading efficiency will help attract more market participation

provide market infrastructure of higher trading capacity

allow multiple-market trading platform and flexible trading hours

set the path for the future implementation of straight- through processing

Benefits

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(II) System Overview

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AMS/3 Trading System consists of five major components - Host, Trading Terminal, Multi-Workstation System (MWS), Open Gateway (OG) and Order Routing System (ORS).

Trading Terminals(Off-floor)

AMS/3 Trading Host

OpenOpenGatewayGateway

(OG)(OG)

FrameRelay Trading

Network

Multi-Multi-workstationworkstation

SystemSystem(MWS)(MWS)


(OG)(OG)

Broker Broker Supplied Supplied SystemSystem(BSS)(BSS)

Terminal Approach

Gateway ApproachTrading Terminals(On-floor)

Order Order RoutingRoutingSystemSystem

Broker Trading Facilities InvestorAccess Channels

Terminal OG/MWS OG/BSS

Internet

AMS/3 Overview

Internet

MobilePhone

PNS

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System Overview

•Trading Terminals - AMS/3 trading terminals are similar to the existing on-floor and off-floor terminals in terms of operation but they offer new functionalities

•Open Gateway (OG) - an electronic linkage between Exchange Participants and the Trading Host, which enables Exchange Participants to capture electronic trading requests from investors via Broker Supplied Systems and Order Routing System. One trading right is entitled to one OG

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System Overview

•Multi-Workstation System (MWS) - a new Exchange Participants’ trading front end with expanded functionality. A maximum of eight terminals can be connected to a MWS server. One trading right is entitled to one MWS server

•Broker Supplied Systems (BSS) - trading systems developed by Exchange Participants themselves or by commercial vendors to capture electronic trading requests

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System Overview

•Order Routing System (ORS) - enables investors to place trading requests and enquire about trading results through the Internet and other eChannels. The trading requests will be automatically routed to Exchange Participants for approval and submission to the market for matching and trade generation

•Proprietary Network System (PNS) - an alternative investor access channel developed by service providers that collects trading requests from third party networks

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New Trading ProcessNew Trading Process

Existing Trading ProcessExisting Trading Process

InvestorOrder Capture Order Input

Order ApprovalBroker OfficeBroker Office

AMS/3 Trading Host

Broker OfficeBroker Office

PNS Channels

Electronic Order Capture,Order Distribution, Order Approval

AMS/3 Trading Host

Brokers’ProprietaryChannels

AMS/3 Channels

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(III) Functions & Capacity

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Comparison of AMS/3 and AMS/2 Functionalities

Trading MethodTrading Method

Market ModelMarket Model

AutomatchingAutomatching

Single MarketSingle Market

AMS/2AMS/2

- Automatching- Single price auction- Allow for other new trading methods

- Automatching- Single price auction- Allow for other new trading methods

Order typesOrder types Limit OrderLimit Order- Limit order - Enhanced limit order- At auction order- Others

- Limit order - Enhanced limit order- At auction order- Others

Multiple MarketMultiple Market

Trading RequestTrading Request By phone/in personBy phone/in person- By phone/in person- Over the Internet or by mobile phone

- By phone/in person- Over the Internet or by mobile phone

AMS/3AMS/3

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Comparison of AMS/3 and AMS/2 Functionalities

Order Modification and Order Status Enquiry

Order Modification and Order Status Enquiry

Order Confirmation

Order Confirmation

Straight-through ProcessingStraight-through Processing

Done by Exchange ParticipantsDone by Exchange Participants

Done by Exchange Participants

Done by Exchange Participants

N/AN/AN/AN/A

AMS/2AMS/2

- Done by Exchange Participants

- Investors can initiate through Internet or mobile phone


- Investors can initiate through Internet or mobile phone


- Sent to investors automatically by email, pager or mobile phone


- Sent to investors automatically by email, pager or mobile phone

Trading platform established to set the path for the future implementation of straight-through processing

Trading platform established to set the path for the future implementation of straight-through processing

AMS/3AMS/3

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New Functionalities

Market Model

• Multiple Market Models

supports concurrent and continuous trading in multiple markets

each market having its own products, timetable, trading method and trading rules

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Trading Methods

• Automatching

New trading methods to be introduced according to market needs

• Single Price Auction (mainly to support high volume order input during market pre-opening or first day of an IPO)

Order inputAuction matching

• Others

New Functionalities

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New Order Types

• Enhanced Limit Order

allows matching in up to 2 price queues, where the price of the trade generated is at or better than the limit price

unfilled orders after matching will be converted to limit orders at the input limit price)

New Functionalities

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New Order Type

Order Matching Result

AskPrice Qty$18.4 90K$18.3 50K$18.2 20K$18.1 130K$18.0 30K

Limit Order

Buy 250Kat $18.0

Trades generated:30K at $18.0

Outstanding:220K at $18.0


EnhancedLimit Order

Buy 250Kat $18.1


130K at $18.1


(Limit order)

Order Matching Result


Limit Order

Buy 250Kat $18.0




EnhancedLimit Order

Buy 250Kat $18.1


130K at $18.1


(Limit order)

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New Order Types to be introduced according to

market needs

• At-Auction Order

a market order which can be input during the auction period. It will enjoy a higher auction matching priority

unfilled at-auction orders will be cancelled after auction matching

• Others

New Functionalities

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Component Component AMS/2 CapacityAMS/2 Capacity AMS/3 CapacityAMS/3 Capacity

(1) Host Handle 75 transactions per second

Handle 200 transactions per second (2.88 million transactions per day based on 4 hours of trading)(2) Network - Host End

(3) Network - Broker End

Total data transmission throughput 1,600Kbps

9.6Kbps per trading right

Total data transmission throughput 18,000Kbps

12Kbps per trading right

Comparison of AMS/3 and AMS/2 System Capacity

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Comparison of AMS/3 and AMS/2 System Capacity

(4) Open Gateway (OG)

(5) Multi-Workstation System* (MWS)

(7) Order Routing System (ORS)

(6) Order Throughput in addition to first

terminal

* 8 workstations can be connected to a MWS server.

Component Component

N/A

N/A

N/A

2.5 seconds per order per terminal (Exchange Participants may have second and third terminals)

AMS/2 CapacityAMS/2 Capacity

Hardware capacity: 12 transactions per secondMax. 12 transactions per second and 6 transactions per second if risk management function is on

40 transactions per second

1 second per order

AMS/3 CapacityAMS/3 Capacity

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Throttle Rate

Throttle rate is the number of orders that can be submitted to the Host System from OG within a specific period of time.

Rationales of adopting throttle control :

•As a flood control mechanism which is common to systems of this type, to ensure fair and orderly operation of the market

•To ensure OG-Host traffic flow will not exceed the planned capacity of AMS/3

•As a reference of SEHK to plan, measure and manage trading capacity and upgrade activities

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Throttle Rate

• The throttle rate under AMS/3 is defined as 1 second per order per trading right. The order throughput of AMS/2 is 2.5 seconds per terminal. Some Exchange Participants may have installed two off-floor trading terminals (second and third terminals) per trading right.

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AMS/3 Host

• AMS/3 Host system is designed to be scalable, meaning that the system capacity could be expanded by adding hardware like CPU, memory, disc, etc and the software reconfiguration of AMS/3.

AMS/3 Network

• If market needs warrant, AMS/3 Network expansion involves addition of network hardware and reconfiguration of routers and Internet Protocol addresses for the entire network.

Scalability Paths

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ORS

• ORS is designed to be scalable to support future transaction growth. Its capacity can be further expanded by adding ORS server and security hardwares.

OG & MWS

• OG vertical scalability is currently limited by the security hardware (for message encryption / decryption) of 12 orders per second. Upgrade direction will either be installing new encryption devices or, if technically feasible, to adopt software encryption mechanism.

Scalability Paths

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Internet

Internet

Mobile PhoneMobile Phone

BSSBSS

1st Terminal at Trading Floor

1st Terminal at Trading Floor

2nd Terminal at Member Offices2nd Terminal at Member Offices

MWSMWS

New Frame-Relay Trading

NetworkORS/PNSORS/PNS

OGOGOGOG

HostHost

AMS/3 Host Security ZoneAMS/3 Host Security Zone

ORS Security ZoneORS Security Zone

Member System Security ZoneMember System Security Zone

System Security

In order to structurally handle system security, AMS/3 has been organised into three different zones each having its specific challenges and security measures.

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Various tools are employed to ensure the security of AMS/3’s various components. These include:

• Firewall

• Anti-virus System

• Smart Card

• Public Key Infrastructure (e-certificate)

• Intrusion Detective System

System Security

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(IV) Preparation for Rollout

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Before AMS/3 market rehearsals, various testing activities have been performed to ensure readiness at individual component, system and operational levels. These items were covered as follows :

Production Readiness TestProduction Readiness TestUser

Acceptance Test

User Acceptance

Test

AMS/3 Day-0 Rehearsal

Programme

AMS/3 Day-0 Rehearsal

Programme

• Functional Test• Volume Stress Test• Fail-over and Recovery Test• Security and Operation Control

Test

• Functional Test• Volume Stress Test• Fail-over and Recovery Test• Security and Operation Control

Test

• Production Environment Shakedown • Production Fallback (e.g. Fallback to Backup

Site ) • Connectivity Test• Network Operations Setup• Market Contingency Plan Rehearsal (e.g.

Fallback to AMS/2)

• Production Environment Shakedown • Production Fallback (e.g. Fallback to Backup

Site ) • Connectivity Test• Network Operations Setup• Market Contingency Plan Rehearsal (e.g.

Fallback to AMS/2)

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•Production readiness tests had been conducted in the past 10 consecutive weeks.

•10 pilot MWS brokers, 41 pilot BSS brokers, selected terminal brokers and all information vendors

participated.

•Themes of the tests include: production environment shakedown, production fallback, connectivity,

network operations setup, fallback to AMS/2, and volume stress, etc.

•Technical issues encountered during the fallback test from primary site to backup site. The issues had been

resolved.

Production Readiness Test

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Preparation for RolloutA series of broker activities were held to familiarise brokers with AMS/3

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The Exchange’s various initiatives to get the market prepared for AMS/3 rollout:

•Raising public/market awareness

market consultation before system development

AMS/3 web corner

press release and presentation to news media

AMS/3 newsletter

other investor education initiatives

Preparation for Rollout

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• Support for Exchange Participants

seminars

product brochures

site visits

terminal training /computer based training


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• Support for Information Vendors to facilitate their connectivity to AMS/3

• Support for BSS Suppliers

release technical specifications to support their in-house system development

briefing sessions, including technical briefings after production readiness tests to share experience for ensuring that their systems are capable for handling high throughput

• Help desk to handle telephone and email enquiries


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• Four consecutive weeks from 2 September - 23 September

• Aim to familiarise all Exchange Participants (including 10 pilot MWS and 41 pilot BSS) with new trading environment

New functionalities

Operation of Trading Terminals, MWS and OG

Volume stress (3 times of historical peak)

AMS/3-to-AMS/2 fallback

Market Rehearsals

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Details of the Market Rehearsal (MR) Scenarios and Calendar are as follows:Details of the Market Rehearsal (MR) Scenarios and Calendar are as follows:

Day 0 Rehearsal Scenarios MR#1 (Week 1)Normal Trading &Volume Stress

MR#2 (Week 2)Volume Stress & Normal Trading

MR#3 (Week 3)Fallback to BackupSite & NormalTrading

MR#4 (Week 4)3-to-2 Falback

Sat2 Sep

Sun3 Sep

Sat9 Sep

Sun10 Sep

Sat16 Sep

Sun17 Sep

Sat23 Sep

Sun24 Sep

Normal Business ScenariosBroker Trading Activities Exchange Administrative Operations Special ScenariosVolume Stress Fallback to Backup Site “3-to-2” Fallback

NonRehearsalDay

Mandatory Session? Yes Yes Yes No Yes Yes Yes N/A

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Market Rehearsals

General

•AMS/3 terminal operation rehearsal following completion of terminal training for 1,800

traders

•Compulsory participation and reporting of rehearsal status by Exchange Participants

•Real-life trading procedure

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Market Rehearsals

General

•Briefings will be provided to all Exchange Participants on Market Rehearsal arrangements

•Rehearsal programme will be closely monitored and reviewed by the Exchange and the SFC, and

Exchange Participants are requested to participate in compliance with stated requirements and guidelines

•Rehearsal programme consists of Normal Trading, Volume Stress, Fallback to AMS/3 backup site, and Fallback to AMS/2

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Market Rehearsals

Normal Trading Rehearsal

• Repeated rehearsals for each session for all on-floor and off-floor terminal users

• Script-free

• To ensure a “real-life” practice, Exchange Participants have to observe a set of guidelines (For example: order quantity NOT greater than 10 board lots, and order price should be within +/- 32 spreads against opening price). The guidelines are not related to system capacity.

Exchange Participants are requested to follow the guidelines or else will be suspended from the rehearsal

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Market Rehearsals

Normal Trading Rehearsal

• Include normal administrative activities (For example: new listings, suspension of trading for individual stocks, and trading and issuers’ news announcements)

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Market Rehearsals

Volume Stress Rehearsal

• To create a “real-life” testing environment, two runs of two 45 minutes sessions of volume stress test at 3 times historical peak for ~ 350,000 orders and 250,000 trades per each 45 minutes session

• Exchange Participants are required to key in 3 orders per minute using off-floor terminals, and on-floor terminals will be reserved for computer-assisted generation of traffic to meet the target stress

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Market Rehearsals

Fallback Rehearsal

• AMS/3 primary site to AMS/3 backup site (normal contingency fallback)

• AMS/3 to AMS/2 ("3 to 2" fall back, special contingency fallback for the first two weeks after Day 0)

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Day 0 (First day of AMS/3 implementation)

• The Exchange will determine if other readiness activities will be required after four weeks of market rehearsals

• Day 0 is subject to satisfactory conclusion of Market Rehearsals which involve all Exchange Participants

• AMS/3 will operate in terminal mode on Day 0. Other functions and open accessibility will be activated thereafter in phases

• The Exchange will inform the market of the Day 0 when its assessment shows the market is ready

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DAY 0DAY 0DAY 0DAY 0

Rollout depending on market needs

•Auction Trading

•New Order Types - Enhanced Limit Order

• Terminal Delivery

• MWS Multi- Terminal Mode Delivery plus OG Delivery

DAY 0 + 2 monthDAY 0 + 2 month DAY 0 + 3 monthDAY 0 + 3 month

Rollout depending on market needs

•ORS Internet Delivery

•ORS Mobile Delivery

Pilot Rollout10 sets of MWS terminals

Day 0Day 0 Month 2Month 1

1st Batch Rollout 50 MWS, ~30 BSS

Month 3 ………

10 MWS10 MWS

30~40 BSS30~40 BSS

50 MWS50 MWS

30 BSS30 BSSTerminalsTerminals

2nd Batch Rollout50 MWS, ~40 BSS

xx MWSxx MWS

xx BSSxx BSS

50 MWS50 MWS

40 BSS40 BSS

3rd Batch Rollout

Day 0 + 3 weeks

DAY 0 + 3 weeksDAY 0 + 3 weeks

• Activate 30-40 BSS plus OG Delivery

• Online trading provided by the 30-40 BSS

Pilot BSS

Rollout

AMS/3 Rollout ScheduleAMS/3 Rollout Schedule

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(V) Contingency Arrangements

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Adopting a prudent approach, the Exchange has developed a complete set of contingency arrangements to cater for emergency system situation.

• AMS/3-to-AMS/3 Fallback (Normal Contingency)

from AMS/3 primary site to AMS/3 backup site to prepare for AMS/3 hardware failure

• AMS/3-to-AMS/2 Fallback (Special Contingency)

AMS/2 will be in standby mode during the first 2 weeks after the AMS/3 Day 0. Trading will be reverted to AMS/2 in case of emergency

Contingency Arrangements After Day 0

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3-to-3 Fallback (similar to 2-to-2 Fallback)

• Fallback will be required if there are environmental failures, such as fire and major hardware failure at the AMS/3 primary site

• Trading and stock data at the backup site are synchronised with the primary site

• Fallback will normally take 1 to 1.5 hours, and reasonable time will be allowed to inform the market

• The last nominal prices will be used as initial nominal price when trading resumes


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3-to-2 Fallback

Scenario 1 (AMS/3 fails before or during the morning session)

• trading will resume in AMS/2 in the afternoon session

• the previous day closing prices of securities will become the initial nominal prices at the restart of AMS/2 in the afternoon session


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3-to-2 Fallback

Scenario 1 (AMS/3 fails before or during the morning session)

• the previous closing prices of the component stocks will be used for initial Hang Seng Index (HSI) calculation

• if these prices are used, the HSI calculation may not reflect the “true” value during the initial trading period. It is until all component stocks have concluded trades in AMS/2, the HSI calculation will return to normal.


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3-to-2 Fallback

Scenario 2 (AMS/3 fails in the afternoon session)

• trading will resume in AMS/2 on the next trading day

• the last nominal prices of securities will become the initial nominal prices when trading resumes on the next trading day. If the last nominal prices cannot be retrieved , initial nominal prices will be set to be “N/A”


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3-to-2 Fallback

Scenario 2 (AMS/3 fails in the afternoon session)

• all the indices, HSI, AOI and GEI will be calculated as usual on the next day. Provided that the last nominal prices for all securities before AMS/3 failure can be retrieved and used as the initial nominal prices


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3-to-2 Fallback

•In both scenarios, the opening quotation rule will be relaxed (order input will not be limited by the +/- 4 spreads restriction)

•The exact time/day of resumption of AMS/3 will depend on the severity of failure and will be announced in advance.


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Trading Terminals(Off-floor)

AMS/3 Trading Host


(OG)(OG)

FrameRelay Trading

Network

Multi-Multi-workstationworkstation

SystemSystem(MWS)(MWS)


(OG)(OG)

Broker Broker Supplied Supplied SystemSystem(BSS)(BSS)

Terminal Approach

Gateway ApproachTrading Terminals(On-floor)

Order Order RoutingRoutingSystemSystem

Broker Trading Facilities InvestorAccess Channels

Terminal OG/MWS OG/BSS

Internet

Internet

MobilePhone

PNS

Day 0 Day 0 + 3 weeks

Day 0 + 3 months

AMS/3 Rollout Strategy

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(VI) FAQ

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When will online trading be possible?

AMS/3 allows investors to trade online via BSS and ORS. The first batch of BSS ready for rollout will be launched on Day 0 + 3 weeks. ORS which enables investors to place trading requests and enquire about trading status through the Internet and other eChannels is planned to be launched on Day 0 + 3 months.

FAQ

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Will the new trading system be insured? Will the Exchange pay compensation to investors or market participants who suffer losses due to AMS/3 system glitches?

Due diligence will be exercised to ensure the normal functioning and operation of the AMS/3 system. According to the Exchanges and Clearing Houses (Merger) Ordinance, the Exchange will not incur liability in respect of anything done or omitted to be done in good faith. The Exchange has developed a set of contingency arrangements, namely AMS/3-to-AMS/3 Fallback and AMS/3-to-AMS/2 Fallback, to cater for emergency system situations.

FAQ

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What kind of online services will investors enjoy after the launch of ORS?

In addition to inputting trading requests, investors can cancel and modify their requests by themselves via Internet. ORS also enables investors to have electronic access to real time stock prices and other securities information.

FAQ

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Does the use of ORS imply direct submission of investor's trading request to the market? No. ORS is only a channel for broker firms to collect trading requests from investors. Investors' trading requests must be passed to a broker. The broker will then review and approve the request and submit it to the market.

FAQ

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Is the implementation of AMS/3 behind schedule? The listing document of HKEx stated that AMS/3 will be launched before the end of the year. It is expected that AMS/3 will be launched in phases following satisfactory conclusion of Market Rehearsals.

FAQ

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Some investors complained about the inefficiency (e.g. congestion of Internet) of “online trading” service providing by certain Exchange Participants. Will investors encounter the same problem after the launch of AMS/3? After the implementation of BSS and ORS, investors’ trading requests will be routed to the central market electronically via Exchange Participants. In normal cases, online trading will provide faster services to investors. However, there may have the possibility of congestion of Internet line in which the Exchange cannot control.

FAQ

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Is it possible for an investor to enter ORS trading request after trading hours? Would a broker receive that trading request in their OG/MWS or OG/BSS? Technically, ORS supports entering of trading requests after market close. But the actual ORS operating hours would depend on business needs.

FAQ

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How can the Exchange prevent investors from inputting wrong trading requests accidentally after the launch of ORS?

Same as the existing trading arrangements, the Exchange cannot prevent human errors done by investors from happening. The Exchange will strengthen its investor education programme by organising a series of public seminars and producing investor education materials for the investing public. As trading requests will have to go through Exchange Participants before routing to the central market, Exchange Participants will continue to perform their advisory and risk management functions after the launch of AMS/3

FAQ

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Will Exchange Participants be allowed to install trading terminals at addresses other than their registered business addresses?

For operational needs and security purposes, the technical installation of trading facilities under AMS/3 should not be restricted to the brokers' registered business addresses. It should be noted that however Exchange Participants are still bound by the requirement under Rule of the Exchange (Rule 352A) that any business of dealing in securities must be carried out at an address registered with the Exchange.

FAQ

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Is there any advantage in using MWS over AMS/3 Terminals?

Both MWS and AMS/3 Terminals support AMS/3 enhanced features, such as access to multi-markets and new order types. However, MWS provides certain trader support functionalities, like order routing and risk monitoring, which are not available in AMS/3 Terminals. When ORS is launched, MWS supports online support with its electronic linkage with ORS.

FAQ

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(VII) Questions & Answers

( I) Introduction

Documents

Transcript of ( I) Introduction