Risk Management of Defective Securities 
18/04/2017 
 

Securities deposited in the CCASS Depository are fungible and not earmarked for a particular participant. HKSCC is responsible for good title to the securities deposited in or withdrawn from the Depository.

Eligibility for Services

Clearing and custodian participants may deposit eligible securities (other than China Connect Securities) into the CCASS Depository and investor participants can only deposit share certificates registered in their names or in the name of HKSCC Nominees Limited.  Normally, shares are credited to participants' stock accounts in CCASS upon deposit (for clearing and custodian participants) or upon successful re-registration into the name of HKSCC Nominees Limited (for investor participants). Stock pledgee participants have limited rights of withdrawal from the CCASS Depository.

Participants are responsible to HKSCC for good title to the share certificates they deposit into the CCASS Depository. The Stock Exchange of Hong Kong requires its members to insure against potential losses. HKSCC may also require CCASS participants other than Clearing Participants to provide assurances to cover potential losses, on admission to CCASS.

Monitoring

Share certificates are screened and checked by the Depository upon receipt, against reported defective or lost securities information from share registrars; and then sent to share registrars to re-register in the name of HKSCC Nominees Limited.  When deposited shares are found to be defective, cannot be re-registered to HKSCC Nominees Limited or have been reported lost, depositing participants are required to replace the shares immediately or provide collateral equivalent to 130 per cent of their market value.

HKSCC monitors the depositing activities of participants and may consider not granting immediate credit to clearing and custodian participants for material share deposits until complete registration in the name of HKSCC Nominees Limited or proof of ownership is provided or collateral is collected.

Insurance Cover

There is an insurance coverage of HK$1 billion in aggregate combined across all sections in the insurance policy.  One of the sections covered include potential losses arising from defective securities.  Any remaining losses arising from Clearing Participant failure are covered by the Guarantee Fund as a last resort.