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| Open Outcry |
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The trading method, still in use in most futures markets, is known as Open Outcry. Member firms or their representatives call out prices in Cantonese in the trading hall. Their calls are supplemented by hand signals. When a deal is done, the seller must complete a ticket within 15 minutes. Upon confirmation of the seller, this ticket is submitted to the settlement department of the Exchange for registration. For effective risk management, records of trading members' deposit and outstanding positions will also be updated.
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|  | | Electronic Trading |
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The Exchange launched the 'Electronic Trading Platform' on 28 March 2008.
Trading hours of the electronic trading platform start from 8:00am to 3:30am (the next day) [HK Time] that provide 19.5 trading hours. 100 ounces Loco London Gold contract and 10 onuces Loco London Gold contract, and 5000 ounces and 500 ounces Loco London Silver are available for trading via the e-trading platform at this stage.
CGSE will provide an unique 'Contract Transaction Code' to every contract traded via its e-trading platorm. With the 'Contract Transaction Code', investor can check their transaction details from CGSE website within the transaction day that provides them an open and transparent investment channel.
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| | | Settlement |
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At the end of a trading session, the Exchange will carry out intermediary settlement of all transactions, and forward the settlement result to a designated settlement bank. The settlement price is determined at the following time:
| Monday to Friday: |
11:30 (Morning session) |
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16:30 (Afternoon session) |
The settlement price is based on the market price at time of determination. For 99 tael gold, it is rounded up to the nearest five dollars. For kilo gold, it is rounded up to the nearest 5 cents. Members will state the difference between their contract prices and the settlement price, and settle any gain/loss with the Exchange.
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.
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| | | Physical Delivery |
Physical delivery is to be arranged by members themselves, the Exchange will play no part in actual delivery of gold. The physical settlement of tael gold and kilo gold trading confines to gold bars produced by the accredited refineries (link to the list of accredited refineries). This delivery list is open to bullion companies and refiners who are currently not our members, as long as they submit convincing evidence about their technologies and quality control capabilities and comply with the legal requirements on commodities trading of Hong Kong. Having qualified as accredited refiners, their gold bars can be used for market delivery.
| | | Premium |
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The Exchange is a market that combines spot and futures trading. Investors can trade spot and defer settlement by paying a premium which simulates gold futures. The premium is determined openly in the market at the following times:
| Monday to Friday: |
11:00 for 99 tael gold |
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11:15 for kilo gold
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At such times, members wishing to settle spot gold can register on board, so that the market can fix the premium for the day based on the supply and demand for physical gold and interest of money market change everyday. If the demand for physical gold is high, sellers who cannot deliver gold will pay premiums to buyers. In other words, long position will receive premiums. In the industry, this is called “high interest” or “plus premium”.
On the other hand, if gold supply to the market is high, this means that demand for cash rises, buyers who delay settlement will pay premiums to sellers. As such, short position will receive premiums. It is a situation of “low interest” or “low premium”. If there is an equal number of physical gold supplied and demanded, the premium will be fixed. When neither side is required to pay premium, we call it “flat interest.”
As a counter measure to manipulation of premium, the exchange has set up a premium regulatory system to regulate the fluctuation of premium. It consists five levels. As premium can move either way, so the premium limit can be seen as a floor or a cap. When the disequilibrium of physical supply and demand of gold persists, the premium regulatory system will be triggered. Once the premium attains the limit, it must remain there for three days before moving up one level.
Limits for premium at each level (calculated per $1000 of the settlement price)
| Level |
Daily interest |
Annualized interest |
| 1 |
0.03% |
11% |
| 2 |
0.04% |
15% |
| 3 |
0.05% |
18% |
| 4 |
0.06% |
22% |
| 5 |
0.07% |
26% |
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| | | Risk Management | The Exchange manages risks with two measures. The first tool is a margin system. At present, each member has a margin-free credit limit of 1,000 taels or 35 kilograms. No margin is payable if the member trade within this limit. If the limit is exceeded, a margin of HK$85,000 is payable for every 100 taels of tael gold and HK$115,000 for every 5 kilograms of kilo gold.
To eliminate risk, the Executive & Supervisory Committees may adjust the weights and margins anytime according to price volatility. During the bullish run in the 1980's, margin for every 100 taels of gold surged to HK$160,000. Thanks to this mechanism, the Exchange has sailed through many challenging times of the gold market over the years. Another risk management measure is "Full-market-settlement".
Under our constitution, when the spread between price of gold and previous settlement price reached HK$850 per tael or HK$11.5 per gram either way, "Full-market-settlement" is triggered and this entails the full settlement of all open interest. For example, based on prevailing margin, the previous settlement price is $10,000, and the current price has risen to $10,850 or dropped to $9,150 before a new settlement price is determined, the Exchange will declared trading suspend and demand settlement of all open interest.
This is similar to the price limit mechanism in other markets. This measure can only be exercised with authority from the Executive & Supervisory Committees. The Exchange will announce trading is suspended. A discounted price will be determined as a settlement price, and members must register on board to settle spot gold and fix a premium. All transactions will be settled using the settlement price. Once this measure is taken, the market cannot reopen until two trading sessions later, at when time trading will start anew.
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