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Following is a question by Dr the Hon Philip Wong and a written reply by the Acting Secretary for Financial Services, Mrs Rebecca Lai, in the Legislative Council today (Wednesday):
Question:
In respect of the Hong Kong Futures Exchange's plan to replace the open outcry system for trading Hang Seng Index futures and options contracts with an electronic order matching system, will the Government inform this Council whether it knows -
(a) if comprehensive stress tests on the new system have been conducted; if so, of the problems uncovered and whether and how they were solved; if the problems are yet to be solved, when and how they will be solved; and
(b) if a contingency plan has been formulated to cope with failure of the system during live operation?
Reply
Madam President,
(a) To prepare for the migration of the trading of Hang Seng Index (HSI) futures and options contracts from the open outcry system to Automated Trading System (HKATS), Hong Kong Futures Exchange (HKFE) has conducted nine simulation trading tests during the period from June to September 1999. All HKFE members were required to participate in the simulation trading tests. The main objectives of these tests were to test the system capacity of HKATS and to assess the overall performance of the system under stressed conditions, essentially at three times historical peak trading volume with bursts at certain periods during the trading session.
Results from these tests have shown that HKATS experienced some performance problems, including delay in transmitting information and disconnection occurring for some members' workstations. At present, HKFE is working closely with the system vendor to resolve these problems and will appoint an external project manager to oversee the process to ensure a successful migration.
In view of the financial services industry's general practice and the Exchange's own established policy of implementing a Year 2000 change freeze policy regarding system changes starting in the 4th quarter of 1999, and the time needed to retest the system, the HKFE announced on 17 September 1999 that it would postpone the migration to HKATS until early next year. From now until then, the Securities and Futures Commission (SFC) will work closely with HKFE to ensure that all outstanding problems relating to HKATS are satisfactorily resolved. The SFC will approve the migration only if it is satisfied that (i) two clean simulated trading tests are achieved by HKFE with no major problems, (ii) Exchange member acceptance of the new system has reached a reasonably high level, and (iii) there exist satisfactory contingency plans.
(b) The HKFE has in place two sets of contingency plans to deal with possible system failure in the migration to the HKATS. The first stage contingency plan is referred to as the "fallback" plan. In the first two weeks following the migration, HKFE will maintain the trading floor for the open outcry system. If the HKATS encounters serious system problems during this initial period, upon activation of the fallback plan, HKFE can revert trading of HSI futures and options contracts back to the open outcry environment to allow trading to continue. If the HKATS operates smoothly in the first two weeks, HKFE will close the trading floor permanently and the general contingency plan will be in place to handle any emergency situation.
The general contingency plan works as follows. As part of the on-going Business Continuity Plan of HKFE, two identical copies of the HKATS are installed in each of the primary and secondary backup sites of HKFE. The central system of HKATS is built on a fully redundant system architecture (Note 1) with automatic failover facility and the hot backup site (Note 2) can take up all necessary operations in the event of system failure in the primary site. In the event where the system failure cannot be recovered immediately by the failover mechanism, HKFE may need to temporarily suspend trading activities until normal operations can be resumed. The HKFE has also established detailed procedures to provide guidance to its staff and members on the actions to take in different circumstances in case of contingency. Moreover, HKFE has also set up SOS Centres equipped with backup terminals to allow its members to continue trading activities in case they encounter system problems in their offices.
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Note 1: Under the full system redundancy architecture, each process has two copies running in each site. When one copy fails, the other one in the same site will take up the system operation immediately.
Note 2: That means the backup site is running in parallel with the primary site at the same time.
End/Wednesday, October 13, 1999
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