Frequently Asked Questions 
17/12/2012 
 
The FAQ will be updated to include more detail and is subject to change.
Part 1: TSF in general 
Part 2: Register as TSF Eligible Participants 
Part 3: Foreign Exchange ( FX ) conversion under the TSF 
Part 4: Trading 
Part 5: Clearing, Settlement and Ear-marking of TSF shares 

       

Part 1.    TSF in general

 

 

1.1

What is TSF?

 

 

 

In addition to other channels (such as licensed banks and brokers) where Renminbi (RMB) can be exchanged or sourced, the RMB Equity Trading Support Facility, or Trading Support Facility (TSF), is designed to serve as a back-up facility to enable investors who wish to buy RMB-traded shares (“RMB shares”) in the secondary market in Hong Kong Dollar (HKD) if they do not have sufficient RMB or have difficulty in obtaining RMB from other channels.  Please click here to see an overview of the TSF model.

 

 

1.2

Is the TSF ready to support the trading of RMB shares?

 

 

 

The TSF was launched on 24 October 2011 to support the trading of RMB shares in the secondary market.  The TSF is operated by Hong Kong Securities Clearing Company Limited (“HKSCC”), a subsidiary of Hong Kong Exchanges and Clearing Limited (“HKEx”).

 

 

1.3

Is the use of the TSF mandatory?

 

 

 

No.  The use of the TSF is optional for Exchange Participants (“EPs”) and all market participants.  EPs are free to offer other arrangements or channels to make RMB available to their customers so long as the services or arrangements offered are in compliance with Hong Kong law and the applicable regulatory requirements.

 

 

1.4

Will the TSF support initial public offering?

 

 

 

The TSF is primarily designed to support the trading of RMB shares on the secondary market operated by The Stock Exchange of Hong Kong Limited (“SEHK”), a subsidiary of HKEx.  The use of the TSF is not a pre-requisite for the initial public offering or listing of RMB products on SEHK.

HKEx has been working closely with Hong Kong regulators and market participants in developing different arrangements to facilitate the initial public offering of RMB products.  Please click here for more details on the RMB Equity Issuance Models.

 

 

1.5

What will be the fund size of the TSF?

 

 

 

The fund size of the TSF will be determined by taking into account a number of factors including the amount of RMB available in Hong Kong (i.e. CNH).  The funds available to the TSF will be maintained at an appropriate level in view of the total RMB deposit base in Hong Kong.  HKEx expects the initial size of the TSF to be modest and relative to the size of the RMB share offerings to be made to the Hong Kong market.   It is also expected that over time, the fund size of the TSF will be adjusted to reflect the market demand for RMB listed products, the underlying usage of the TSF and the overall RMB deposit base in Hong Kong.  The TSF will be operated and maintained to help support and sustain the development of the RMB equity market in Hong Kong and for such period as is needed to achieve this purpose.

 

 

1.6

Will the TSF or EPs using the TSF be subject to the RMB 20,000 daily exchange limit?

 

 

 

The RMB 20,000 daily exchange limit is a requirement of a clearing agreement (the “Clearing Agreement”) that banks have entered into with the Bank of China (Hong Kong), the clearing bank for RMB in Hong Kong.

The daily exchange limit is not applicable to the TSF or to EPs using the foreign exchange (“FX”) Services of the TSF (the “FX Services”).  The FX transactions to be handled by the TSF will be transactions entered into between HKSCC, as the operator of the TSF, and EPs who wish to utilize the TSF.  HKSCC is not a party to the Clearing Agreement and as far as HKSCC is aware, no EP is a party to the Clearing Agreement.

 

 

1.7

Will the TSF support all RMB stocks traded on the SEHK including authorized unit trusts and derivative warrants?

 

 

 

The TSF supports trading of RMB-traded shares in the secondary market initially. Starting from 6 August 2012, the TSF will also support the trading of RMB-traded equities-related Exchange Traded Fund and Real Estate Investment Trust. Therefore, ChinaAMC CSI 300 Index ETF (stock code: 83188) and Hui Xian REIT (stock code: 87001) will be included as TSF stocks.
  
Other types of securities, such as non-equity related exchange traded funds (e.g. Hang Seng RMB Gold ETF – stock code: 83168), derivative warrants and callable bull/bear contracts (CBBCs) will not be supported at this stage.  This is to ensure the best use of the RMB funds available to the TSF. HKSCC, as the TSF operator, may review this policy from time to time as appropriate.  A list of securities to be supported by the TSF ("List of TSF Stocks") will be updated and published on the HKEx website.  

 

1.8

What do Participants need to do if TSF suspends the FX Services?

 

 

 

The provision of FX Services by the TSF is subject to the availability of funds or the FX facility from the TSF Partner Banks.  The FX Services may be suspended when, among other reasons, HKSCC has reasonable grounds for concern that the RMB or HKD funding may not be sufficient to support the fulfillment of its obligations under any FX order or transaction. When a suspension takes place, trades on the Exchange which are supported by the FX Services executed after the effective time of suspension will not be acknowledged as TSF supported trades. Accordingly,   Participants will have to be responsible for obtaining its own funds in RMB in respect of buy orders after the effective time of suspension; and in respect of sale orders, Participants will have to accept the sale proceeds in RMB.
  
Based on the model currently envisaged, an announcement on the potential suspension of the TSF will be made to alert the market (through the existing channels including AMS, CCASS Terminal and the HKEx website) when the FX facility available to the TSF drops to a particular prescribed level.  In such circumstance,  Participants should assess their risk exposure, consider whether to amend or cancel their outstanding TSF FX orders which have been input into the trading system and consider taking steps to suspend clients’ orders for the FX Services (e.g. by blocking incoming TSF Buy Orders via online trading platform).
 
If HKSCC ultimately decides to suspend all or part of the FX Services, it will publish an announcement on the HKEx website and/or by such other means as HKSCC considers appropriate, stating which part of the FX Services will be suspended, whether any trade supported by a TSF FX transaction (a “TSF FX Transaction”) or a FX transaction entered into for the purpose of de-earmarking RMB shares (a “Stock Release FX Transaction”) will be affected, the effective date and time of suspension and any other information as HKSCC may consider appropriate.  Where suspension takes effect, Participants should consider taking steps to adjust relevant records in their systems and communicate with their clients regarding those trades that are supported by the TSF and those that are not.  In addition, Participants may also have to consider adjusting their funding positions (e.g. by obtaining additional RMB funding as mentioned above).  
  
Participants are referred to section 12A18 of the CCASS Rules for information on the temporary suspension of the TSF.

 

  

1.9

The SFC requires Participants to segregate the securities for proprietary holding, securities held for cash clients and for margin clients.  However, there are only two TSF Accounts, ie 17 and 18.  What can we do?

 

  

 

Participants should ensure that they comply with the SFC requirements at all times, taking into account the services that they wish to provide to clients through the use of the TSF.
  
Currently, all the existing CCASS stock accounts have been allocated to Participants.  Additional stock accounts for TSF purposes will only be available where Participants agree to re-designate the use of stock accounts for TSF purposes and this may have an impact on their existing operations.  HKSCC will monitor market demands for more TSF segregated accounts and will discuss options on how to deal with the issue with affected Participants.
  

Part 2.    Registration as TSF Participants

 

   

2.1

What types of Participants are eligible to use the FX Services to be provided by the TSF?

 

   

 

There is no mandatory requirement to use the FX Services.  However, Participants who wish to utilize the TSF are required to comply with the  registration criteria of SEHK and/or HKSCC (as the case may be) (The registration criteria is set out in Section IV of TSF Participant Registration Form).  These are summarized below.

For the purposes of trading RMB shares, the TSF will be available to the following types of Participants provided that they comply with the TSF Participant Registration Criteria of SEHK:

1)   EPs who are themselves Direct Clearing Participants under the CCASS Rules and who comply with the TSF Participant Registration Criteria of HKSCC; and

2)   EPs who are not Direct Clearing Participants but who have entered into a clearing agreement with a General Clearing Participant under the CCASS Rules and where the General Clearing Participant complies with the TSF Participant Registration Criteria of HKSCC.

EPs are referred to SEHK Rule 563H for further information.

For the purposes of clearing and settling trades concerning RMB shares, the TSF will be available to the following types of CCASS Participants provided that they comply with the TSF Participant Registration Criteria of HKSCC:

1)     Direct Clearing Participants who are EPs under the SEHK Rules and who comply with the TSF Participant Registration Criteria of SEHK; 

2)    General Clearing Participants who have entered into a clearing agreement with an EP (who is a Non-Clearing Participant under the CCASS Rules) and where the EP complies with the TSF Participant Registration Criteria of SEHK; and

3)    Custodian Participants who comply with the TSF Participant Registration Criteria of HKSCC.

A General Clearing Participant should ensure that the clearing agreement it enters into with Non-Clearing Participants include an obligation on its part to settle TSF supported trades and all corresponding TSF FX Transactions.  The General Clearing Participant should also consider bringing a Non-Clearing Participant’s attention to the special features and restrictions of the TSF.  Participants are referred to Rules 12A03 and 12A21 of the CCASS Rules for further information.

Investor Participants, Stock Lender Participants and Stock Pledgee Participants under the CCASS Rules will not be permitted to use the TSF at the initial stage.  

A participant who has complied with the relevant criteria set out above is referred to as a “TSF Participant”; and "List of TSF Participants" will be published on the HKEx website.

 

   

Part 3.    Foreign Exchange ( FX ) Services under the TSF

 

  

3.1

Who will be parties to a TSF FX Transaction?

 

   

 

For TSF Participants who use the FX Services of the TSF, TSF FX Transactions will be deemed to be entered into between the Participant and HKSCC, as the operator of the TSF.  The TSF only offers two types of FX Services: conversion from HKD to RMB and from RMB to HKD.

 

   

3.2

How will the RMB FX Rates be determined?

 

  

 

The TSF will source or exchange RMB and HKD from one or more Hong Kong licensed banks which HKSCC has established arrangements with (the “TSF Partner Banks”) after taking into account, among others, the demand of both currencies from TSF Participants on a daily basis.  The FX transactions between HKSCC and the TSF Partner Banks serve as back-to-back transactions to support the execution of FX transactions between TSF Participants and HKSCC, as the operator of the TSF. The exchange rates to be used by the TSF will be set by reference to the rates provided by the TSF Partner Banks on a commercial basis.

 

  

3.3

Will TSF Participants be subject to any FX order size limit when using the services of the TSF?

 

  

 

It is not currently envisaged that an FX order size limit will be imposed by the TSF.  However, availability of the FX Services is subject to the availability of RMB and HKD in the Hong Kong market.
  

3.4

Why are there two sets of RMB FX Rates for the morning and afternoon sessions instead of one set for the whole day?

 

   

 

Under the current arrangement, TSF Partner Banks are obliged to provide “RMB Indicative FX Rates” to the TSF before the morning session and the afternoon session for reference by the Participants and investors.  Subsequently, they are required to provide the respective “Final FX Rates” in view of the TSF’s FX demands at the specified times.  The Final FX Rates should be equal to or better than the RMB Indicative FX Rates.  FX rates published for the morning session apply to trades concluded during the Pre-opening session. 
  
If only one set of FX rates are provided for the whole trading day, the TSF Partner Banks may have to quote the RMB Indicative FX Rates with wider spreads in order to limit their FX exposure.  As a result, the rates may not provide as good a reference value to the Participants and the investors as intended.
  
To balance the risk exposure of TSF Partner Banks and benefits to Participants and investors, the TSF is currently designed to provide separate RMB FX Rates for the morning and the afternoon trading sessions.

 

  

3.5

In case the HKEx website is not available, will the TSF RMB FX Rates be announced through an alternative source? 

 

  

 

Yes.  The TSF will publish the RMB FX Rates through other existing channels including AMS and CCASS Terminals.  Investors may check the rates through their brokers and/or custodians.  When the HKEx website is back to service, the investors may verify previously published rates through the website as historical RMB FX Rates will be displayed on the HKEx website for a period of not less than 30 calendar days.

 

  

Part 4.   Trading

 

  

4.1

Is there any input requirement when an EP wishes to input an order to buy or sell shares in AMS/3 and use the FX Services for money settlement of the share transaction?

 

  

 

Where an EP (who is a TSF Participant) wishes to use the FX Services in support of a share transaction on the AMS/3, the EP will effectively be entering into two separate transactions: (i) the transaction to buy or sell the relevant shares; and (ii) the FX transaction to buy or sell RMB (depending on whether the share transaction is a buy or a sell transaction).  To indicate the use of the TSF service, an EP is required to input any order to buy or sell shares into AMS/3 in the following manner: 

An order to buy shares using the TSF service (“TSF Buy Orders”) must be input in the form of an At Auction Order (“AAO”) or a Special Limit Order (“SLO”) AND be identified with the indicator “TSF” in the first three characters of the Reference field or BSS Broker Comment field at the time of input.  Any TSF Buy Order which has not been input correctly will be considered invalid.  Examples of an invalid TSF Buy Order include a buy order with an order type other than an AAO or a SLO but with the “TSF” indicator input, and a buy order in the form of an AAO or a SLO but without the “TSF” indicator input.  Invalid TSF Buy Orders which have been matched will not be treated as TSF trades and Participants will be required to settle the relevant trades in RMB, not HKD.

An order to sell shares using the TSF Service (“TSF Sell Orders”) can be input in the form of any order type and must be identified with the indicator “TSF” in the first three characters of the Reference field or BSS Broker Comment field at the time of input.   Any TSF Sell Order which has not been input correctly will be considered invalid, for example, sell orders of any order type without the “TSF” indicator input.  Invalid TSF Sell Orders which have been matched will not be treated as TSF trades and sale proceeds will be settled in RMB, not HKD.  

 

  

4.2

Will AMS/3 automatically reject orders marked with “TSF” that were input by an EP who is not registered as a TSF Participant or other invalid TSF orders?

 

  

 

No.  AMS/3 will not automatically reject orders with “TSF” marked in the Reference field or BSS Broker Comment field which has been input by an EP who is not a TSF Participant or other invalid TSF orders (described in question 4.1).   However, invalid TSF orders, if matched, will not be treated as TSF supported trades and will accordingly have to be settled by the relevant EPs in RMB, not HKD.  No FX Service will be provided for the above trades by the TSF.

 

  

4.3

Can an EP change the request for using the TSF for an order?

 

  

 

Before the TSF order is automatched on the AMS/3, an EP (who is a TSF Participant) may remove the “TSF” indicator from the order and the order will not be treated as a TSF order.  Once the TSF order is matched, the request for the FX service is irrevocable.

 

  

4.4

Can an EP use the TSF for non-automatched trades (i.e. manual trades)?

 

  

 

No.  The TSF will support trades concluded via automatching only (i.e. only automatched trades will be accepted by the TSF).

   

  

4.5

 Why does the TSF restrict the order types for buy trades?

 

  

 

As described in question 4.1, TSF Buy Orders must be input in the form of an At Auction Order (AAO) or a Special Limit Order (SLO).  Any outstanding AAO or SLO after matching will be cancelled automatically and will not be stored in AMS/3.  This feature will ensure that buy orders specified for using the TSF FX Services will be settled with certainty via the TSF and investors can be assured of execution certainty.

 

  

4.6

How can investors submit TSF Orders?

 

Investors who intend to use the TSF can instruct their brokers who have been registered as TSF Participants to request for the FX Services.  With the instructions of the investors, the brokers (as TSF Participants) could then input TSF orders as described in Question 4.1 in AMS/3.  Investors, however, may have their own sources of RMB funding and may not need to tap into the TSF.  The TSF is meant to be a back-up FX facility.  There is no requirement to use the TSF’s FX Services.

 

  

4.7

What should investors be aware in placing TSF Orders through their brokers?

 

  

 

Only the trading of “TSF Stocks” and only TSF Participants are eligible for using the TSF.  Before placing TSF orders, investors should ensure the RMB shares that they want to trade is on the “List of TSF Stocks” and their brokers are on the “List of TSF Participants”.  Both lists are available on the HKEx website. 
  
Investors should also check with their brokers the relevant terms, fees, operation flows and agreement that need to be signed for using the TSF.  
  
Moreover, they should check the TSF RMB FX Rates or request brokers to advise them of the rates before instructing their brokers to use the FX Services (see also Questions 3.2 and 3.4 above).  The TSF publishes RMB Indicative FX Rates and RMB Final FX Rates (along with the Fund Balance for “TSF BUY” and “TSF SELL”)* on the HKEx website on each trading day for TSF trades. The RMB Indicative FX Rates are available on the HKEx website at around 9:30 am (in respect of trades to be conducted in the pre-opening session and the morning session) and 1:00 pm (in respect of trades to be conducted in the afternoon session) and are for reference only.  The RMB Final FX Rates are available after the close of the respective sessions for settlement between the TSF and the brokers. The RMB Final FX Rates will be equal to or better than the relevant Indicative FX Rates. As different rates will apply to different trading sessions, investors should check the applicable rates with their brokers for settlement of TSF trades.
  
Because of the “HKD in and HKD out” principle (see Question 5.2), investors should note that they MUST receive sale proceeds in HKD and not RMB unless a Stock Release Request is effected.  Therefore, when selling RMB shares purchased through the use of the TSF, TSF Participants are obliged to use the FX Service for the conversion of the RMB sale proceeds to HKD prior to releasing the proceeds to investor clients.  Investors should also note that physical certificates of RMB shares purchased with the support of the TSF cannot be withdrawn from CCASS unless they have been released from earmarking through the Stock Request Release procedure (also see Question 5.11).   
  
Furthermore, brokers are obliged to settle FX transactions with the TSF once a TSF order is matched. Investors may be required to make the same commitment to their brokers and should check with their brokers what arrangement applies.
 
*Note: The Fund Balances are static figures and are updated 3 times a day only.  The market will be alerted when the Fund Balance drops to a prescribed level.  Participating brokers should consider not accepting TSF Buy Orders when the TSF Services may be suspended soon due to the availability of fund.  Also, participating brokers may receive RMB for their TSF Sell Orders if the trades are executed after the Fund Balance of “TSF BUY” drops to zero.

 

  

Part 5.    Clearing, Settlement and Earmarking of TSF shares

 

  

5.1

How does TSF FX settlement work?

 

  

 

While a bid/ask rate will apply to each TSF Exchange Trade (see part 3 question 3.2) and the total value of TSF FX Transactions to be settled by a CCASS Participant (which must be a TSF Participant) is to be calculated on a gross basis, the money settlement amount applicable to a CCASS Participant will be paid on a net basis on each Business Day that HKSCC is open for business.  The settlement cycle will follow the standard settlement cycle for equity securities listed and traded on SEHK, with RMB and HKD payments effected through existing CCASS settlement payment methods including RTGS and CCASS money settlement instructions.

 

  

5.2

What is the “share earmarking” concept and how does it work?

 

  

 

To maximize the availability of RMB to the TSF for the provision of FX Services, it is a key feature of the TSF that only HKD is accepted for the purchase of RMB shares (via the FX Services from HKD to RMB); and only HKD is allowed to be paid as sale proceeds for the sale of those RMB shares (via FX Services from RMB to HKD) – the “HKD in and HKD out” principle. 

For the purpose of maintaining the “HKD in and HKD out” principle, RMB shares purchased via the use of the TSF will automatically be transferred from the clearing account of a CCASS Participant (which is a TSF Participant) into a segregated stock account specifically designated as “TSF Account” in CCASS.  Shares transferred into a TSF Account are regarded as having been “earmarked”.  These earmarked shares can be transferred to the “TSF Account” of other CCASS Participants who are also TSF Participants (e.g. a custodian participant) via SI but not to other accounts.

 

  

5.3

Will any new CCASS function be introduced to help Participants manage or track TSF FX Transactions and ear-marked shares?

 

  

 

Yes.  Additional CCASS reports will be provided including reports on confirmation of TSF Final FX Rates, money obligations for settlement of TSF Exchange Trades and details of TSF FX Transactions and Stock Release Requests made or input by CCASS Participants who are TSF Participants.

 

  

5.4

Can a TSF Participant use ATI to transfer TSF Stocks from TSF Accounts to other stock accounts, or vice versa?

 

  

 

A broker can use ATI to transfer TSF Stocks under the following situations:

1)   transfer between TSF Accounts 17 and 18;

2)   transfer from any stock accounts to TSF Account 17 or 18 for quantity up to the quantity to be earmarked on the current day and the overdue TSF earmarking requirements.

However, transfer of TSF Stocks out of the TSF Accounts to other stock accounts by ATI is not allowed.

 

  

5.5

Is a TSF Participant required to transfer TSF Stocks from account 17/18 to 01 for CNS settlement?

 

  

 

No.  Participants are not allowed to transfer TSF Stocks out of their TSF Account.  The transfer is normally done by CCASS automatically.  The Participant is required to ensure that there are sufficient TSF Stocks in its TSF Principal Account 18 for de-earmarking.

If sufficient TSF Stocks are kept in the TSF Principal Account 18, TSF will transfer the net TSF Sell Stock Position automatically before each Batch-settlement-run from TSF Principal Account 18 to Clearing Account 01, until the full amount of shares for de-earmarking is being transferred.

If the stocks are kept in TSF Segregated Account 17 or with other participants, the Participant will need to transfer the stock to the TSF Principal Account 18 via ATI / SI.

 

  

5.6

What should a broker do if it mistakenly input the “TSF” indicator without client instruction or failed to input the “TSF” indicator when it has received client instructions to do so?

 

  

 

Generally speaking, brokers will need to either arrange for RMB conversion in the FX market to complete the settlement with HKSCC and/or its clients; or to use the Stock Release Request to release earmarked shares from the TSF to rectify the erroneous input.  For a detailed analysis of the handling for each exception case, please refer to Part 7: Exception Management of “TSF Information Paper” available at:

http://www.hkex.com.hk/eng/market/sec_tradinfra/TSF/Documents/TSF_Info_Paper.pdf

 

  

5.7

When and how should a TSF Participant prepare funds for settling TSF FX transactions?

 

  

 

Participants can refer to the “TSF Confirmation Report (CSETF07)” available at around 6 pm daily for funding preparation to settle TSF FX transactions.  Section 3 on “projected stock transfers and money obligations to be settled on the respective settlement days” sets out the money obligation due at different times of a payment day in detail.

 

  

5.8

What happens if a TSF CCASS Participant does not settle its TSF FX Transactions?

 

  

 

If a TSF CCASS Participant fails to settle any of its TSF FX Transaction, HKSCC is entitled to (1) not settle any of its corresponding money positions of the TSF FX Transaction in HKD or RMB; (2) take such action as it considers necessary to adjust, amend or reverse any TSF FX Transaction (in whole or in part) in respect of which the Participant has failed to settle; and (3) impose an exception handling fee on the Participant as it considers appropriate.  Further, HKSCC is entitled to take other additional actions in specific circumstances.

Participants are referred to section 12A.8.1 of the CCASS Operational Procedures for further details.

 

  

5.9

What happen if a Participant inputs a TSF account for an SI but its counterparty inputs a non-TSF account for its SI?  Will the SIs be matched? Will it be settled?

 

  

 

‘Settlement account’ is not a matching field for SI. Therefore SIs with different ‘settlement accounts’ can still be matched. However, the status of such matched SIs will be automatically change to ‘FROZEN’ and will not be settled by CCASS. 

Participants can enquire such frozen SI Positions via ‘Enquire Due / Overdue Position’ function, where ‘FROZEN’ will be displayed next to the POSITION TYPE.  If required, Participants should re-input the SI for matching and settlement with its counterparty.  FROZEN SI Positions will be purged after 10 calendar days.

 

  

5.10

Can TSF Stocks be transferred through ISIs?

 

  

 

No.  Investor Participants do not have TSF Accounts for keeping earmarked TSF Stocks.  Therefore, TSF Stocks cannot be transferred through ISIs.

 

  

5.11

Can CCASS Participants withdraw physical certificates for earmarked TSF Stocks?

 

  

 

Direct withdrawal of physical certificates is not allowed for earmarked TSF Stocks.  CCASS Participants are required to de-earmark the earmarked TSF Stocks first and then withdraw physical certificates from a stock account other than the TSF Accounts. 

 

  

5.12

How are the HKD/RMB conversion rates for Stock Release Requests determined?

 

  

 

The applicable conversion rates will be dependent on the time when Stock Release Requests are accepted by the TSF.  If the requests are accepted by HKSCC at or before 12:00 noon on a trading day, the applicable conversion rate will be the RMB Buy Final FX Rate published by HKSCC at approximately 12:45 p.m. on that trading day.  If the requests are accepted by HKSCC after 12:00 noon on a trading day, the applicable conversion rate will be the RMB Buy Final FX Rate published by HKSCC at approximately 4:45 p.m. on that trading day.