AMS/3 Overview

1. Introduction AMS/3 is the third generation of electronic stock trading system implemented by HKEx in October 2000. It has a proven record of serving the operation of the cash market in an efficient and reliable manner. A consolidated view of trading facilities supported by AMS/3 is illustrated in the figure below. AMS/3 System Overview

First Terminal

` ORS Host AMS Host

Trading Hall

PNS Interface

Trading Network

Order Router

` Second Terminal Proprietary Network

Gateway Device ` ` `

Multi-workstation Server

Gateway Device

Broker Supplied System

Multi -workstation System

2.

Exchange Participant Access Method Exchange Participants can either subscribe a Trading Terminal or an Open Gateway to conduct trading. Terminal Approach HKEx provides standalone trading terminals (First Terminals at the Trading Hall as well as Second Terminals at the offices of Exchange Participants). Transaction throughput is confined by the rate of data input. Gateway Approach HKEx also provides Open Gateway as a Windows-based device installed at Exchange Participants office to facilitate electronic interface of AMS/3 with front office systems operated by Participant. The input rate of orders that could be submitted via the Open Gateway is governed by a throttle mechanism and Participants can subscribe necessary quantity of throttles from HKEx in accordance with their order flow demand. There are two choices for connecting trading facilities to the Open Gateway: (i) Broker Supplied System (BSS) A BSS is a front office solution either developed in-house by the Participant or a third-party software package acquired from commercial vendors. With this access mechanism, Exchange

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AMS/3 Overview
Participants can use proprietary trading workstations customised to suit their operational requirements. BSS also facilitates the integration with Participant back office system for straight through processing. (ii) Multi-workstation System (MWS) The MWS is a Windows-based trading facility offered and supported by HKEx. It is consisted of a server maintaining a local order book for connection with multiple trading workstations for order submission and order management by multiple traders. The functions and user interface are similar to Trading Terminals but it is aimed for Participants with a business need to handle larger volume of order flow. It should be noted all off-floor Second Terminals and Open Gateways are connected to the central AMS/3 host via SDNet which is a high speed and high availability fibre network custom-built for the trading, clearing and market data dissemination operation of HKEx. 3. Investor Access Channels AMS/3 offers an Order Routing System (ORS) for Exchange Participants to collect investor orders from proprietary network service vendors for electronic capture of order transactions entered directly by their investors. Supported transactions include submit, modify, cancel and enquire orders. Proprietary Network Systems (PNS) collect investor orders and submit order transactions to the Order Router. The Order Router then forwards the transactions to the corresponding Exchange Participants for processing. ORS transactions are not directly transmitted into AMS/3 host for execution. Investors have to register with an Exchange Participant with PNS subscription so that ORS can route the transactions to the corresponding Exchange Participants' systems. Risk control checking and authorization are made at the designated Participants system before the transaction is sent from there into AMS/3 host for order matching and execution. After orders are executed, trade results received by Exchange Participant systems are forwarded to the Order Router automatically which will then relay the notifications to the originating PNS for dissemination of the order processing results to investors via email messages and other forms of electronic media without human intervention. 4. Major Central Market Functions Provided by AMS/3 AMS/3 is a stock trading system with a rich set of functionalities to satisfy existing market needs and future demands for new business initiatives. A high level summary of some of its key functions is described below: a) Multi-Market Support AMS/3 supports simultaneous operation of multi-markets each with its own trading timetable, trading methods and stock counters. The system is currently configured with four markets namely the main board, the growth enterprise market (GEM), the NASDAQ market and the ETS (Extended Trading Securities) market. b) Multiple Trading Methods AMS/3 allows multiple choices of trading methods to suit the characteristics and liquidity profile for different types of equity products. The trading methods supported include:
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AMS/3 Overview

c)

automatic continuous matching on a price and time priority basis single price auction for pre-opening trading session for price discovery and trade execution at an equilibrium price semi-automatic matching for odd lots and special lots in a point and shoot manner.

Multiple Product Support AMS/3 has the ability to handle a large variety of instrument types with different currencies. The system currently has a total number of more than 6,500 stock counters in the form of stocks, derivative warrants, bonds, exchange traded funds and callable bull/bear contracts etc.

d)

Multiple Order Types AMS/3 supports multiple types of order to suit different trading needs of Exchange Participants and their investor clients. These include limit order, enhanced limit order, special limit order, at auction order and at auction limit order. Execution outcome can further be controlled with the use of "all or nothing" qualifier during order input.

e)

Price Validation AMS/3 performs various price and consideration validations before the order is accepted into the order book according to different trading sessions. The system provides price warning messages to alert the Exchange Participants if the price input is significantly away from the market price. The validation helps avoid invalid order prices or erroneous trades concluded from EPs input error.

f)

Market Data Dissemination AMS/3 is built with a capability to disseminate market data in a high performance manner. The market data includes 10 levels of market depth and associated order queues.

g)

Order and Trade Confirmation Order input from trading devices is responded by the AMS/3 host with an immediate acknowledgement. Order and trade confirmations in the form of unsolicited messages are then sent out by the host to update Exchange Participant trading devices of the processing status of the submitted order transactions as part of order execution. Furthermore, a central trade feed function is supported so that an Exchange Participant firm can designate a particular trading device as the single point of consolidation to receive real-time notifications for trades originated from all trading devices belonging to the firm.

h)

Disaster Recovery Capability AMS/3 supports disaster recovery with the use of a warm backup system. When fallback is required, the backup system can be activated to takeover production trading after completion of the necessary process reconfiguration and recovery processing. All trading devices are designed with a switchover capability to the backup node without human intervention at the Exchange Participant end.

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