HKMA Appoints HSBC as Settlement Institution for the US$ Clearing in Hong Kong

At a signing ceremony held today (9 March 2000), the Hong Kong Monetary Authority (HKMA) announced that HSBC has been appointed as Settlement Institution for the US dollar clearing system in Hong Kong.

The purpose of this US dollar clearing system is to facilitate the efficient settlement of US dollar transactions in our time zone. Not only is the US dollar the leading international currency, but also, partly because of the linked exchange rate system and the continuing development of Hong Kong as an international financial centre, the holding of US dollars and the trading of US dollar denominated assets have become increasingly prevalent in Hong Kong. An efficient and reliable US dollar clearing system will be an important addition to Hong Kong's financial infrastructure. In the near term, the development of a US dollar clearing system will support the initiative of the Stock Exchange of Hong Kong in launching the Growth Enterprise Market (GEM), which will allow shares listed on it to be denominated and settled in US dollars.

"The US dollar clearing system is important in developing Hong Kong's infrastructure as an international financial centre," said Mr Joseph Yam, Chief Executive of the HKMA. "By facilitating delivery versus payment (DvP) for US dollar denominated securities traded in Hong Kong and payment versus payment (PvP) for foreign exchange transactions between the US dollar and Hong Kong dollar, settlement efficiency will be enhanced and settlement risk greatly reduced."

In line with international practice and with the recommendations by the Bank for International Settlements (BIS), a private sector solution has been devised for the US dollar clearing system. A commercial bank - HSBC - will act as the Settlement Institution. It will in turn appoint Hong Kong Interbank Clearing Limited, the current operator of Hong Kong dollar payment system, as its clearing agent.

In November 1999, the HKMA issued a letter to all banks in Hong Kong notifying them of the proposal to implement US dollar clearing and inviting expressions of interest to act as the Settlement Institution. A number of banks responded and eventually four detailed applications were submitted. A Selection Panel, comprising disinterested members of the Exchange Fund Advisory Committee and Senior Executives of HKMA, assessed the proposals submitted by the applicant institutions. The Panel recommended, and the Exchange Fund Advisory Committee approved, the appointment of HSBC to be the Settlement Institution for a franchise period of five years.

Mr David Eldon, Chairman of The Hongkong and Shanghai Banking Corporation Limited, said: "As a major international bank with vast experience in managing interbank clearing systems, HSBC is honoured to be appointed the Settlement Institution for the US Dollar clearing system in Hong Kong. Strong support from within the HSBC Group, especially our member companies in the United States, will ensure the success of the system."

The key functions of the US dollar clearing system will include an interbank Real Time Gross Settlement (RTGS) system, electronic bulk clearing for stock market transactions (usually known as CCASS), Payment versus Payment for US dollar/Hong Kong dollar foreign exchange transactions, and US dollar paper cheque and CMU interface for the settlement of debt securities. The system will be implemented in phases. It is envisaged that the more critical components, RTGS and electronic bulk clearing for CCASS, will commence operation in the third quarter of 2000. More detail about the system can be found in the Annex.

Hong Kong Monetary Authority

9 March 2000