Hong Kong Exchanges and Clearing Limited (HKEx) announced today the introduction of a framework for Third Party Clearing service in its securities market.
A Stock Exchange Participant (EP) can now trade on the Exchange without becoming a Clearing Participant of Hong Kong Securities and Clearing Company Limited (HKSCC), the wholly-owned subsidiary of HKEx that operates the Central Clearing and Settlement System (CCASS), by outsourcing all its CCASS-related clearing functions to a General Clearing Participant (GCP) of HKSCC, which will assume all the EP’s trade settlement obligations in CCASS.
GCP and Direct Clearing Participant (DCP) are the two categories of CCASS Clearing Participantship under the new clearing framework. A GCP, which may be an EP but does not have to be one (e.g. a GCP may be a custodian), can provide Third Party Clearing service to EPs. A DCP, must be an EP, is required to handle the clearing and settlement of its own transactions and is not permitted to provide Third Party Clearing service (DCP is equivalent to Broker Participant under the previous framework).
Merrill Lynch Far East Limited and Fortis Clearing (Options) Hong Kong Limited have become the first two GCPs of CCASS providing Third Party Clearing service and an application from Citibank N.A. is being processed. Optiver Trading Hong Kong Limited, Eclipse Options (HK) Limited and Tibra Trading Hong Kong Limited are the first three EPs to outsource their clearing operations and gain the right to trade on the Stock Exchange without a Clearing Participantship in CCASS. Furthermore, a number of independent clearing service providers and EPs have also expressed interest in offering or using Third Party Clearing service.
Third Party Clearing has been permitted in HKEx’s Derivatives Market for many years. There are currently seven firms offering Third Party Clearing service to Futures Exchange Participants (FEPs) and four offering the service to Stock Options Exchange Participants (SOEPs).
“The introduction of Third Party Clearing to the securities market makes it easier to access the market and gives Exchange Participants more flexibility in their business operations,” said HKEx Chief Operating Officer Gerald Greiner. “It also ensures that the clearing infrastructure of the Hong Kong securities market conforms to international standards and is in line with the infrastructure in other major financial markets.
“Third Party Clearing is a prerequisite for the Remote Exchange Participantship arrangements we are currently considering,” Mr Greiner added. “Admitting firms as Remote Exchange Participants would allow them to trade in our markets without having an office in Hong Kong and could help enlarge our investor base and further increase our market liquidity.”
More information on Third Party Clearing in the securities market, including Frequently Asked Questions, is available on the HKEx website at: http://www.hkex.com.hk/eng/market/clr/secclr/clrarng_hkscc/tpc/tpc.htm.