|Chinese Gold & Silver Exchange Society|
Hong Kong Gold and Silver Exchange
(Credit: World Gold Council)
The exchange has 190 members, of whom 31 are also members of the Bullion Group.
The basic contract is a lot of 100 taels (120 oz/3.74 kg), made up of 20 five-tael bars, each 990 fine. The trading lot for kilobars is 1 kilogram of gold of 999.9 fineness. Trading is by open outcry.
In Hong Kong dollars/tael (minimum price fluctuation HK$0.50 per tael) or Hong Kong dollars/gram (the minimum price fluctuation is HK$0.01 per gram).
The settlement prices are used by members to settle their accounts with the exchange after each trading session. Settlement price is determined by taking the price of transaction, rounded to the nearest five or ten dollars.
The premium is determined on each trading day. At 11.00 on each trading day from Monday to Friday and at 10.00 on Saturday, the Exchange carries out physical settlement of gold and a premium is determined whereby members are allowed to defer their physical contracts one day by exchanging premium between buyers and sellers .
At fixing, members who intend to deliver or accept physical gold declare the amount needed which is then written on the designated board. When premium fixing starts, an experienced floor officer will tentatively put up a premium figure on the board. The premium value changes in response to the change in amount of physical demand and supply of gold. The premium keeps changing until the amount of gold to be delivered and received equals. Another premium will be determined on the next trading day. Due to the ever-changing nature of bullion market, the premium value varies from day to day. Generally speaking, premium is influenced by two elements: 1. physical gold market and 2. Hong Kong dollar interest rate.
Depending on market conditions, premium can be positive, negative or level. When the physical demand is greater than supply of gold, a case of positive premium is present whereby the short position holders are required to pay premium to the long position holders. In case of negative premium, that is when the supply of physical gold is greater than the demand, the long position holders are required to pay the short position holders premium. Level premium effectively means a nil value is assigned.
The Exchange laid down rules on the range of premium values permitted on a trading day. There are five levels of adjustment.
Should the demand and supply of gold for physical delivery be out of equilibrium for three consecutive trading days, the premium could advance one level in an attempt to bring upon an equilibrium.
Level 1: The maximum premium allowed for is either -0.03% or +0.03% of the settlement price of the previous session. Should there be no physical delivery or the demand or supply of physical delivery fail to reach an equilibrium in three days, the premium limit may advance to Level 2.
Level 2: The maximum premium allowed for is either -0.04% or +0.04% of the settlement price of the previous session. Should there be no physical delivery or the demand or supply of physical delivery fail to reach an equilibrium in three days, the premium limit may advance to Level 3.
The same process will continue until Level 5 is reached. Should the demand and supply achieve equilibrium at or after Level 2, the premium will then be allowed to return to a free-floating state.
activity was not affected by Hong Kong's full return to China in 1997.
For more technical details of trading on the exchange see Library - General Market Books (Robert Sitt, The Hong Kong Gold Market)
See also: Hong Kong - Market Introduction