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Exchange Fund

Central Moneymarkets Unit

The HKMA established the Central Moneymarkets Unit (CMU) in 1990 to provide computerised clearing and settlement facilities for Exchange Fund Bills and Notes. In December 1993, the HKMA extended the service to other Hong Kong dollar debt securities. The CMU offers an efficient, safe and convenient clearing and custodian system for Hong Kong dollar debt instruments. Since December 1994, the CMU has been linked with other regional and international systems. This helps promote Hong Kong dollar debt securities to overseas investors who can use the links to participate in the Hong Kong dollar debt market.

The CMU service was further extended to non-Hong Kong dollar debt securities in January 1996. In December 1996, a seamless interface between the CMU and the Hong Kong dollar RTGS interbank payment system was established. This enables the CMU system to provide real-time and end-of-day Delivery versus Payment (DvP) services to its members. The CMU was further linked to the US dollar, euro and Renminbi RTGS systems in December 2000, April 2003 and March 2006 respectively to provide real time DvP capability for debt securities and also intraday and overnight repo facilities for the US dollar and euro payment systems in Hong Kong.

Main Scope of Services

In addition to providing CMU members with securities transfer services, the CMU also offers the following services:

  • Collateral Management System
    - Automatic Repo Facility (both intraday and overnight) in Hong Kong dollars, US dollars, euros and renminbi
  • Securities Lending Service
    - Securities Lending Programme for debt securities issued by the private sector
  • Market Making Arrangement for Exchange Fund Bills and Notes
  • Issuance Programme for Exchange Fund Bills and Notes
  • Arranger, custodian, agent and operator of notes issued by HKSAR Government
  • Real time DvP for all CMU securities denominated in Hong Kong dollars, US dollars, euros and renminbi
  • Cross-border DvP Settlement via regional central securities depositories (CSDs) and international central securities depositories (ICSDs)
  • Other custodial services
    - Paying Agent
    - Securities Lodgement
    - Allotment by tendering
  • Corporate action service
  • Bank-to-bank repo service.

Settlement Finality

The settlement of transactions made through the CMU system is final and irrevocable. This finality is protected from insolvency laws and other laws by the Payment Systems and Stored Value Facilities Ordinance.

Cross-border Links

The CMU has developed a number of external links with regional CSDs and ICSDs. One-way inbound links from Euroclear and Clearstream, the two largest ICSDs in the world, to the CMU were set up in 1994 to allow international investors to hold and settle Hong Kong dollar debt securities through these international networks. The links became two-way in November 2002 (Euroclear) and January 2003 (Clearstream) to enable investors in Hong Kong and other parts of Asia to hold and settle Euroclear and Clearstream debt securities directly in a secure DvP environment.

The CMU also established links with CDSs in Australia in December 1997 and South Korea in September 1999. These links, in addition to facilitating cross-border holding and settlement of debt securities in Hong Kong and overseas, also enlarged the investor base, broadened the domestic debt markets, and reduced settlement risk by facilitating DvP settlement for cross-border securities transactions. The HKMA and the China Government Securities Depository Trust and Clearing Company Limited (CDCC) signed an agreement in April 2004 to establish a link between the CMU and the Government Securities Book-entry System (GSBS) operated by the CCDC. This link enables authorised investors in Mainland China to hold and settle Hong Kong and foreign debt securities lodged in the CMU. In addition, the CMU also established a link with the CSD in Taiwan during December 2012 to facilitate investors in Taiwan to hold and settle Hong Kong and foreign debt securities lodged in the CMU.

Bond Connect Linkage Service

On 16 May 2017 the People’s Bank of China (PBoC) and the HKMA jointly announced their approval for Mainland and Hong Kong Financial Infrastructure Institutions to collaborate in establishing mutual bond market access between Mainland China and Hong Kong under the scheme known as Bond Connect. Bond Connect is an arrangement that will enable Mainland and overseas investors to trade, settle and hold bonds tradable in the Mainland and Hong Kong bond markets through connection between the Mainland and Hong Kong Financial Infrastructure Institutions.

Bond Connect consists of a trading link and a settlement link. Under the settlement link of Bond Connect, CMU has opened nominee accounts with two Mainland CSDs, namely the CDCC and Shanghai Clearing House (SHCH), to settle Bond Connect transactions and hold CIBM bonds on behalf of CMU members, whom in turn are providing services directly or indirectly to overseas investors using Bond Connect. Bond Connect is implemented on a phased approach with Northbound Trading as the initial phase. Southbound Trading will also be explored in due course.

Listing of Exchange Fund Notes on the Stock Exchange

In August 1999, the HKMA listed all outstanding issues of Exchange Fund Notes (EFNs) on the Stock Exchange of Hong Kong (SEHK). The listing helps improve the secondary market liquidity of EFNs and broaden the investor base to the retail level. The mechanism developed for the EFNs has paved the way for the listing of other public sector issuers and private corporate issuers. For example, the Hong Kong Mortgage Corporation followed suit with the listing of securities issued under its Note Issuance Programme in October 1999.

Using Exchange Fund Bills/Notes as Margin Collateral for Trading of Stock Options and Futures

In order to assist liquidity management by market participants in the stock options and futures exchange, the CMU has developed infrastructure to enable the SEHK Options Clearing House Limited and the Hong Kong Futures Exchange Clearing Corporation Limited to use Exchange Fund paper as common margin collateral for the trading of stock options and futures. With the approval of the HKMA, the SEHK Options Clearing House Limited and the Hong Kong Futures Exchange Clearing Corporation Limited became Recognised Dealers of Exchange Fund paper in March 1999.

CMU Bond Price Bulletin

Pursuant to the recommendations of the Review on Financial Infrastructure Development conducted by the HKMA in 2005 under the guidance of the Financial Infrastructure Sub-Committee of the Exchange Fund Advisory Committee, the CMU has developed a CMU Bond Price Bulletin to provide retail investors with convenient on-line access to indicative bond prices quoted by individual financial institutions in Hong Kong. Launched in January 2006, the Bulletin helps promote the retail bond market in Hong Kong. It improve retail investors' access to the secondary bond market, by providing price and other information on bond products available in the market, raise product awareness and improve price transparency.

Electronic Trading Platform

Launched in December 2007, the Electronic Trading Platform is one of the recommendations arising from the Review of Debt Market Development completed by the HKMA in 2006. The Platform provides the necessary infrastructure to support electronic trading of the Exchange Fund Bonds and Notes and can be extended to cover other bonds and financial instruments available in the market. The Platform increases the price transparency among the market players and streamlines the trading process. Market players can identify their trade counterparties and conclude deals more efficiently. Overseas as well as local market players are encouraged to use this platform to trade bonds and other financial instruments issued in Hong Kong.

CMU Fund Order Routing and Settlement Service

Launched in August 2009, the CMU Fund Order Routing and Settlement Service provides CMU Members, who may also be investment fund distributors, custodians, managers and institutional investors in Hong Kong and the region, with a standardised platform for processing investment fund transactions. The scope of operation of the service includes:

  • handling of investment funds subscription, redemption and switching orders
  • generation of corresponding confirmation and payment instructions
  • provision of regular reports
  • provision of investment funds custodian service.

Following the launch of Mainland-Hong Kong Mutual Recognition of Funds (MRF) in the second half of 2015, which allows Mainland and Hong Kong recognised funds to be distributed in each other’s market, the CMU has linked up with transfer agents and fund houses in the Mainland including the China Securities Depository and Clearing Corporation Ltd (ChinaClear) to facilitate cross-border investment fund order routing services.

Disclosure Framework for CMU System

The Committee on Payments and Market Infrastructures (CPMI) (formerly known as Committee on Payments and Settlement Systems (CPSS)) of the Bank for International Settlements and the International Organization of Securities Commissions (IOSCO) jointly issued a disclosure framework and assessment methodology (PDF File, 598KB) in April 2012 for their principles for financial market infrastructures (PFMIs), which is the latest international standards for financial market infrastructures (FMIs).

The disclosure framework (DF) (PDF File, 694KB) is intended to promote consistent and comprehensive public disclosure by FMIs in line with the requirements of the PFMIs (PDF File, 1.1MB). The CMU is subject to the DF, and the disclosure report of the CMU is completed according to the disclosure template outlined in the DF.

Asia-Pacific Central Securities Depository Group

In March 2001, the HKMA became a member of the Group, an informal international organisation to facilitate the sharing of experience among central securities depositories and clearing organisations in the Asia Pacific region.

Last revision date: 19 August 2019
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