This week the Shanghai International Energy Exchange (INE) announced a consultation regarding proposed amendments to its trading rules on how it handles trading disruptions and market halts (click here).
The INE regularly publishes proposed updates to its rules for comment by its Members or Overseas Special Participants (OSPs), Overseas Intermediaries and Clients. This week it proposed changes to Articles 28 and 29 of the Trading Rules of the Shanghai International Energy Exchange (the current rules may be found here and a full list of the current elements of the Rulebook may be found here). As a model approach to such rule change proposals, in its announcement per the link above, the INE publishes an explanatory note regarding the changes, a comparative table of the old and new rules along with a redlined version of the full rules.
Articles 28 and 29 were intended to protect market integrity when trading infrastructure or market participant readiness breaks down before or during a trading session. The prevailing Article 28 sets a quantifiable trigger for a trading halt – that is, if more than 10% of the “trading seats” (i.e. this refers to the access through which a market participant places orders for execution into the Exchange’s electronic trading system for matching) with valid connections lose their ability to book deals. This is measured against the peak number of connected seats observed in the first half hour after the previous day's market open. If the threshold is met, the INE must suspend trading until the underlying malfunction is fixed to avoid creating unfair or distorted market conditions. Article 29 addresses a related but earlier-stage problem that might occur before continuous trading begins. If the INE is alerted to abnormal conditions or more than 30% of market participants haven't finished clearing or initializing their trading systems, the INE has the discretion to delay the opening/closing times of continuous trading or suspend that session altogether;
Under the changes proposed this week, the INE intends to restructure how it handles trading disruptions by merging the two mechanisms under Articles 28 and 29 into a single framework. Under the old rules, Article 28 was a narrow, mandatory trigger based on the 10% of trading seat threshold that effectively forced a market suspension when systems malfunctioned, while Article 29 separately gave the INE discretion, before continuous trading opened, to delay or suspend sessions based on the 30% clearing/initialization threshold. Under the proposals, Article 29 (which is deleted) is collapsed into the new Article 28 setting a single standard. The standard is also broadened in several ways.
The trigger is now measured as 10% of Members or OSPs unable to trade (i.e. not to number of seats), and it applies generally rather than being tied to the pre-open window. It also adds a catch-all clause allowing the INE to act whenever it "otherwise deems it necessary". This effectively converts the fairly objective, rules-bound halt mechanism into a broadly discretionary one. The number of available responses the INE has is also expanded under the proposals. Instead of just suspending trading or adjusting session times, the INE can now also adjust contract-level dates such as the last trading day, expiration date, last delivery day, and other relevant dates — plus take “other necessary measures”.
Firms active on the INE should ensure that internal policies and procedures reflect the proposed changes, should they proceed, and to ensure that both front and back office are aware of the INE’s expanded, discretionary powers in this regard.
