In Hong Kong's stock market this August, beyond index fluctuations, a 'hardware upgrade' directly affecting every transaction is quietly reshaping the trading ecosystem. On August 3, HKEX officially implemented the second-phase arrangement for lowering the minimum tick size. For applicable securities priced between HKD 0.5 and HKD 10, the minimum price increment was reduced from HKD 0.01 to HKD 0.005, a 50% decrease. Following the first-phase reform on August 4, 2025, this is another key move by HKEX in market microstructure after a year, and as of this Friday, it has operated smoothly for one full trading week.
What is the 'minimum tick size'? Why lower it?
The minimum tick size, simply put, is the smallest price increment for quoting each stock, also commonly referred to by investors as 'one tick'. In the Hong Kong stock market, stocks in different price ranges have different tick sizes: the lower the stock price, the smaller the tick size, and vice versa. It directly determines the minimum spread between bid and ask orders and is one of the core parameters measuring market trading costs and efficiency.
In June 2024, HKEX issued a consultation paper proposing a systematic reduction of minimum tick sizes, disclosed the consultation conclusions in December that year, and announced implementation in two phases. The first phase launched on August 4, 2025, targeting stocks in the HKD 10-20 and HKD 20-50 ranges, lowering tick sizes from HKD 0.02 to 0.01 and from HKD 0.05 to 0.02, respectively. A year later, the second phase arrived as scheduled: tick sizes for securities in the HKD 0.5-10 range were reduced from HKD 0.01 to HKD 0.005. Applicable securities include stocks, real estate investment trusts (REITs), equity warrants, etc., but exclude exchange-traded products (ETPs), bonds, exchange-traded options, and structured products (including callable bull/bear contracts and derivative warrants).
According to HKEX disclosure, this adjustment involves about 1,345 securities, approximately 51% of the roughly 2,600 applicable securities, accounting for about 24% of their average daily turnover. In other words, more than half of listed securities in the Hong Kong market have had their quotation 'downgraded' under this reform. To ensure a smooth transition, HKEX also arranged a voluntary pre-launch test on August 1 to verify market participants' system readiness.
First Phase Results Significant: Spreads Narrowed 35%, Trading Speeded Up 30%
Lowering the tick size was not a snap decision, but was built on the proven results of the first-phase reform. HKEX data shows that from the first phase to July 4, 2026, bid-ask spreads of applicable securities narrowed by 35% on average, and order matching time was shortened by 30% on average. Narrower bid-ask spreads mean lower 'friction costs' for investors between buying and selling, while faster execution means orders are more likely to be filled at the expected price, improving market liquidity.
HKEX Chief Operating Officer Liu Biyin previously stated that since the bid-ask spread narrowing reform in August last year, bid-ask spreads in Hong Kong's securities market have narrowed significantly, trading costs have fallen, and overall liquidity has improved. The second-phase arrangement will further enhance market efficiency and liquidity. HKEX Group Deputy Chief Executive Officer Yao Jiaren also emphasized that HKEX is committed to increasing the vitality and liquidity of the Hong Kong stock market through various market microstructure enhancement measures, and this implementation is an important step on the reform path.
What does it mean for investors?
For ordinary investors, the most direct impact of the new rules is reflected in three aspects:
- Lower trading costs: Smaller tick sizes narrow bid-ask spreads, so investors pay lower 'hidden costs' whether building or adjusting positions, with particularly notable marginal improvements for high-frequency and quantitative strategies.
- Order placement strategies change: For stocks in the HKD 0.5-10 range, for example, the previous tick interval of HKD 0.01 has been reduced to HKD 0.005. Investors need to be more precise when placing orders or limit orders, and the window for the traditional 'grab one tick' approach is shorter, demanding better monitoring and execution skills.
- Stock Connect coordinated adjustment: According to Stock Connect announcements by the Shanghai and Shenzhen exchanges, the price declaration limits for Stock Connect stocks subject to the second phase have been changed accordingly. When mainland investors trade such stocks via Stock Connect, they need to note the change in minimum tick size to avoid order failures due to mismatched quotation units.
It is worth noting that the market is not unanimous on narrowing spreads. Li Weihong, a Legislative Council member representing the financial services sector, once pointed out that lowering the minimum tick size can reduce trading costs and boost liquidity and turnover, but some day-trading investors prefer to keep spreads at some width to capture greater space amid volatility. This tension between the 'efficiency school' and the 'trading school' precisely shows that any microstructure reform is the result of multi-objective trade-offs.
Beyond Tick Sizes: HKEX's 2026 Reform Blueprint
The minimum tick size reduction is only one part of HKEX's intensive reforms this year. Reviewing the timeline, 2026 can be regarded as HKEX's 'big year of microstructure reform':
- June 9: Optimized post-close T+1 futures trading rules. The price limit in the T+1 session for six major index futures contracts, including Hang Seng Index futures and Hang Seng Tech Index futures, was expanded from ±5% to ±6%, enhancing price discovery and providing investors with more flexible rebalancing tools in volatile markets.
- June 30: Implemented board lot optimization reform, lowering the minimum board lot value guideline from HKD 2,000 to HKD 1,000, adding a HKD 50,000 value cap for issuers with more than 100 shares per lot, and standardizing lot sizes across the market into eight standard specifications. From July 2, new IPO companies and existing companies undergoing share restructuring must fully comply; after the paperless securities market launches, all companies must complete standardization rectification within six months.
- August 3: The second phase of minimum tick size reduction took effect, forming a 'relay' with the first phase and covering more than half of applicable securities.
In addition, in April this year HKEX issued a consultation paper on shortening the cash market settlement cycle from T+2 to T+1, expected to be implemented in Q4 2027, to align with global mainstream market rules and improve capital efficiency. Analysts point out that these reforms all point to the same goal—making the 'capillaries' of the Hong Kong stock market smoother and aligning trading mechanisms more closely with international standards.
Industry Insight: Reshaping the Ecosystem, Consolidating Hub Status
Chen Yuxuan, a non-banking financial analyst at Huatai Securities, believes that reforms such as board lot optimization effectively lower investment thresholds, improve market mechanisms, reshape Hong Kong stocks' micro trading mechanisms, and significantly enhance market operation efficiency. Liao Bo, chief macro analyst at Northeast Securities, noted from a derivatives perspective that the expanded price limits increase the price elasticity of futures, quickly reflect supply-demand changes, curb malicious speculation, and promote rational market operation.
At a broader level, HKEX Chief Executive Officer Chen Yiting previously revealed that the current external market conditions are mature. The exchange will continue to deepen reforms, consolidate market operations, expand 'blue ocean' businesses such as fixed income and commodities, enrich its product system, and attract more international capital to the Hong Kong market. Analysts believe that as various reforms are implemented, the Hong Kong stock market will operate more standardized and efficient, and Hong Kong's position as a core hub connecting mainland and global capital markets will be further consolidated.
Conclusion: How Can Reform Dividends Be Applied to Investment Practice?
For ordinary investors, the microstructure reforms do not bring immediate market moves but rather a quiet ecological improvement—lower friction costs, better pricing efficiency, and trading rules closer to international practice, all of which help enhance the attractiveness of Hong Kong stocks to various funds in the long run. At the operational level, investors are advised to: first, pay attention to changes in quotation units for applicable securities in Stock Connect trading; second, watch for liquidity improvement opportunities in thinly traded stocks after spreads narrow; third, keep track of follow-up reforms such as lot size standardization and shortened settlement cycles, and adjust trading habits accordingly.
Every 'refinement' of trading rules is a cornerstone for a market moving toward maturity. The long-term value of this round of institutional upgrades for Hong Kong stocks is worth investors' patient waiting.
