Collateral Management 
10/10/2017 
 

Both HKCC and SEOCH provide collateral management services with support of the Common Collateral Management System (CCMS), which allows Clearing Participants (CPs) to deposit collaterals which are acceptable by HKCC/SEOCH to meet their margin obligations according to the established collateral policy.

Acceptable Collaterals

HKCC and SEOCH accept various types of cash and non-cash collaterals to facilitate CPs to meet their margin obligations and reserve fund contribution requirement according to their funding needs.  Please refer to the following tables for the lists of acceptable collaterals:

Acceptable Collaterals for Margin Coverage

HKCC

SEOCH

Cash

HKD

EUR

JPY

RMB

USD

Exchange Fund Bills and Notes

US Treasuries

 

Stock Collateral *

* All Hang Seng Index Constituent stocks and Tracker Fund of Hong Kong

At least 50% of margin requirement must be covered by cash in the Settlement Currency except for RMB-denominated contracts.  For RMB-denominated contracts, margin requirement can be satisfied by collateral other than cash in RMB subject to a fixed limit (currently RMB 1 billion) on each HKCC CP:

i)  below which HKCC CP can satisfy the margin requirement by any acceptable cash and/or non-cash 
    collateral where non-cash collateral could satisfy up to 50% of the RMB margin requirement only; and 
ii)  beyond which HKCC CP must satisfy its RMB margin requirement by cash in RMB.

When there is excess collateral, the usage of different types of collateral will be prioritised.  The margin requirements will first be satisfied by cash collateral in the settlement currency, followed by cash denominated in any acceptable currency other than the settlement currency and finally by any non-cash collateral.

Acceptable Collaterals for Reserve Fund Contribution

Initial Contribution

Additional/Variable Contribution

Cash

HKD

Exchange Fund Bills and Notes

 

Haircut

Cash

Where the currency of the cash collateral is different from the settlement currency of the contract, the following haircuts rates will be applied:

Denominated Currency

Current Haircut Rate

EUR

6%

JPY

7%

RMB

3.7%

USD

0.7%

 

Exchange Fund Bills and Notes, and US Treasuries

Remaining Time to Maturity

Exchange Fund Bills and Notes
Current Haircut Rate

US Treasury Bills and Notes
Current Haircut Rate

Less than 1 year

2%

1%

Between 1 and 5 years

3%

3%

More than 5 years

5%

7%

Where the currency of the non-cash collateral is different from the settlement currency of the contract, an additional haircut will apply to the non-cash collateral at the corresponding haircut rate set forth in table above for the cash collateral.

Stock Collateral

For House collateral account, haircut with a floor rate of 30% applies for each stock as general collateral.  For Client collateral account, stocks are not accepted as general collateral.

Previous Haircut Rate

Covered Call

In addition to pledging collaterals for margin coverage as mentioned above, a SEOCH Participant can make use of their existing securities holdings as collateral to specifically cover particular short call positions.  SEOCH Participants can input appropriate cover call requests via their DCASS terminal.  If there is sufficient securities collateral in the CCMS Collateral Account for the covered call requests, the relevant short call positions that are being covered are excluded from calculation of margin requirements.  Cover call requests can be entered up to the DCASS System Input Cutoff Time at 6:45 p.m. on a Business Day.  Cover call requests are effected real time provided there are sufficient securities.

Collateral Management

Collaterals deposited are marked-to-market and valued on a regular basis with relevant haircut rates applied.  These collaterals can be used to meet CPs’ margin obligations according to the collateral policies established by HKCC and SEOCH.

CCMS offers a comprehensive account structure allowing CPs to manage their collateral effectively while segregating their client collaterals from their house or Market Maker (MM) accounts, e.g. only DCASS client accounts can be mapped to CCMS client account.  It also allows more than one DCASS accounts to be mapped to the same type of CCMS account so that the related settlement obligations can be offset for settlement purpose.  Such offsetting arrangement assists CPs’ funding arrangements and improves settlement efficiency significantly.

Deposit and Withdrawal Process

CPs can manage their collateral actively through the CCMS deposit and withdrawal services.  CPs are requested to execute bank mandates authorising clearing houses to deposit cash collateral into CCMS.  For withdrawal of cash collaterals, if the withdrawal request is made before 11:00 a.m., the cash transfer will be valued on same day.

Interest and Accommodation Charges on Cash and Non-cash Collateral

Interest earned from the cash collateral used to meet margin obligations is rebated to CPs at the prevailing bank savings deposit rate.  On the other hand, interest charged is deducted from CPs if the bank savings deposit rate is negative.  Accommodation charges are imposed on utilized non-cash collateral.  Both the interest income and accommodation charges are calculated automatically and reflected in CPs’ CCMS account on a regular basis.