US Dollar Clearing System Full Implementation From 18 December 2000

US dollar cheque clearing and an interface between the US dollar Real Time Gross Settlement (RTGS) system and the Central Moneymarkets Unit (CMU) will be introduced next Monday, 18 December, in the third and final phase of implementation of Hong Kong's US dollar Clearing System.

With the US dollar cheque clearing mechanism in place, customers can open US dollar current accounts with banks in Hong Kong. The US dollar cheques that are drawn on banks in Hong Kong will be settled on the day following presentation of the cheque. This two-day settlement cycle compares with the settlement period of approximately two weeks for US dollar cheques drawn upon banks in the US. At present, 68 banks in Hong Kong are ready to offer US dollar chequing accounts to their customers.

CMU is the debt securities clearing and custodian system operated by the Hong Kong Monetary Authority (HKMA). The new US dollar RTGS/CMU interface allows real time and end-of-day delivery versus payment (DvP) settlement of US dollar denominated debt securities deposited in the CMU, thereby enhancing settlement efficiency and eliminating settlement risk. The interface also enables automatic intraday repo to provide intraday liquidity to the participants of the US dollar RTGS system.

Mr Joseph Yam, Chief Executive of the HKMA, said, "With the US dollar RTGS/CMU interface in place, the settlement risk associated with the trading of the US dollar denominated debt securities deposited in the CMU will be eliminated. CMU will become even more attractive to both local and overseas investors and issuers. The US dollar cheque clearing service will provide greater convenience to retail customers in making US dollar payments."

The first phase of the US dollar clearing system, covering the US dollar RTGS system, and the second phase, facilitating payment versus payment (PvP) settlement for foreign exchange transactions between US dollar and Hong Kong dollar, were introduced on 21 August and 25 September respectively. The HKMA has appointed The Hongkong and Shanghai Banking Corporation Limited as the Settlement Institution.

"The US dollar clearing system has been operating very smoothly and the response from local and overseas banks has been enthusiastic. I have every reason to believe that the last phase will be equally successful," said Mr David Eldon, Chairman of The Hongkong and Shanghai Banking Corporation. "The introduction of a US dollar cheque service by local banks will provide individual and corporate customers with an efficient and cost-effective way of making US dollar payments."

In the past three months, an average of over 2,000 transactions, involving around US$3 billion, were settled daily. Within this total, the daily PvP turnover has increased from around US$700 million at end-September when it was first introduced, to around US$1 to 1.5 billion more recently. This reflects the preference of banks in Hong Kong to have some of their US dollar/Hong Kong dollar foreign exchange transactions settled on PvP basis to eliminate Herstatt risk (the settlement risk arising from time zone difference).

Currently, the US dollar clearing system has 62 direct participants and 59 indirect participants. Among the indirect participants, 22 are from overseas.

Media enquiries :

HKMA

Thomas Chan 2878 1480
Caitlin Wong 2878 1687

HSBC

Vinh Tran 2822 4924
Olivia Sin 2822 4925

Hong Kong Monetary Authority

The Hongkong and Shanghai Banking Corporation Limited

14 December 2000