Will HKD-traded securities and RMB-traded securities be transferable ?
Transferability between the HKD-traded and RMB-traded securities (from one counter to another counter without change in legal ownership) will help to ensure the efficiency of arbitrage and thereby maintain the prices of the two counters in the secondary market within a reasonable gap. Therefore, we favour allowing transferability between the two counters.
Will dual-counter with transferability breach the RMB20K conversion limit for banks with individual customers ?
No. Under the dual-counter model with transferability, where an investor bought HKD-traded securities and subsequently converted them into RMB-traded securities and sold them on the RMB counter, the transactions do not actually involve a net increase of RMB funds in the offshore market. It only entails the transfer of RMB funds in the offshore market from one investor to another. Furthermore, the daily conversion limit only applies to banks' RMB currency exchange business with personal customers.
How will the market cap of the issuer be calculated ?
At the initial launch of the Dual Tranche, Dual Counter model or Dual Counter (“DC”) model, HKEx will calculate the market capitalization of a listed company or ETF which has both RMB-traded securities and HKD-traded securities by multiplying the total number of issued shares/units (including both counters) with the price of the HKD counter. HKEx will continuously review this calculation method, taking into account the development of market practice for the DTDC/ DC model, relative liquidity of the dual counters and market feedback.
Will dividends be paid in HKD or RMB ?
Any dividend policy (and for that matter other corporate actions) will have to be consistent with the fact that the securities of the two counters are the same class of securities. Subject to the above and insofar as dividend payment is concerned, the issuer may offer an option to all the holders of the securities to elect to take a dividend in the currency in which the dividend is declared or in an alternative currency or currencies, and set a different default currency for the respective counters in the absence of an election by the holders of the securities. In the cases in which the issuer offers to pay a dividend in RMB (as an option), it will have to consider its access to RMB for dividend payment and its obligation in that respect in relation to the availability of RMB. There should be adequate disclosure in relation to dividend payment and currency options (if any) in the prospectus.
How are "inter-counter" day trades settled?
As always, Participants should ensure they have sufficient securities available to fulfill their CNS short positions on T+2. For "inter-counter" day trades, if a Participant relies on securities received from a long position in one counter to settle its short position in another counter, CCASS Participants should submit a "Multi-counter Transfer Instruction" to HKSCC through CCASS Terminals before 3:45 p.m. In case the securities received from the long position are subject to the on-hold mechanism, Participants should effect cash prepayment to release the CNS allocated securities before effecting the inter-counter transfer. All activities related to "Multi-counter Transfer Instructions" are recorded in a CCASS report which is available to Participants for reconciliation purpose.
Will buy-in exemptions be granted for the settlement of "inter-counter" day trade?
Buy-in exemption will be considered for applications that satisfied the defined conditions. Where the Participant has an unsettled short position in one counter and has sufficient shares/units and/or long position in the other counter, following transfer of which are sufficient to settle the relevant short position on T+2, Participant can submit an “Application Form for Exemption of Buy-in” to HKSCC not later than 8:00 p.m. on T+2. Participant is required to provide HKSCC a copy of the relevant CCASS report evidencing the shares/units and/or long position are available to cover the relevant short position on T+2; evidence that the Participant has submitted a Multi-counter Transfer Instruction which is either cancelled by the system after the batch transfer run and/or a system message is returned as there are insufficient stock balance upon input of Multi-counter Transfer Instruction after the batch transfer run; and effected cash prepayment, if applicable.
Payment of dividends in HKD/RMB and guidance to Managers
Dividends of a Dual Counter HKD-denominated ETF are declared in HKD and may be paid in HKD only or, where so offered by the ETF manager, in RMB as well as HKD depending on an investor’s election. Where an investor does not have an RMB account, the investor may have to bear the fees and charges associated with the conversion of any dividend in RMB into HKD or any other currency.
Any dividend policy (and for that matter other corporate actions) will have to be consistent with the fact that units traded on the two counters are of the same class and unitholders of both counters must be treated equally.
If an ETF manager chooses to set a different default currency for dividend payment (i.e. pay dividend in RMB for RMB counter and HKD for HKD counter in the absence of an election by the unitholders), the ETF manager must offer an election to investors in both counters to choose the currency in which they would like to receive the dividend. This means that both investors in RMB counter and HKD counter can elect to receive dividend in RMB or HKD. There should be adequate disclosure in relation to dividend payment and currency options (if any) in the prospectus. Investors should refer to the prospectus in relation to details of dividend payment and if in doubt, consult the ETF manager or your brokers.
How can investors distinguish between the two counters of securities traded in HKD and RMB? Will there be any identification in their stock codes and stock short names? (updated on 11 October 2012)
An investor can distinguish between the two trading counters of a Dual Counter ETF by their stock codes and their stock short names.
Separate and unique stock codes will be assigned to the HKD and RMB counters respectively. The last four digits of the stock codes for the two counters will be the same, while the stock code for RMB counter will be a 5-digit number starting with an “8”, in line with the existing allocation arrangement.
- HKD counter - XXXX
- RMB counter - 8XXXX
The stock short names for the two counters will also be different. For the RMB counter, the stock short name will end with -R to indicate that the ETF is traded in RMB. There will be no specific marking in the stock short name of the HKD counter.
The following is an illustrative example of the stock short names:
- HKD counter – “XYZ ETF”
- RMB counter – “XYZ ETF-R”
Will the two counters have a single International Securities Identification Number (ISIN) or two separate ISINs?
The ISO 6166 standard - ISIN (International Securities Identification Number) -uniquely identifies a security. It is a 12-character alpha-numerical code that does not contain information characterizing financial instruments but serves for uniform identification of a security at trading and settlement.
ISINs are issued by the identified, responsible National Numbering Agency based upon a set of guidelines that have been established amongst all National Numbering Agencies. The Association of National Numbering Agencies (ANNA) has updated its ISIN Guidelines document to reflect this principle.
According to the assessment and agreement made with ANNA and similar to the local code arrangement, two separate and unique ISINs shall be assigned to the RMB counter and HKD counter respectively, to allow for clear identification between the two counters in the post-trade settlement and position management.
Do brokers need to enhance their systems or processes to support the dual counter trading model?
There are no additional requirements to brokers for trading within the HKD counter. For trading within the RMB counter, brokers must ensure their own readiness for trading and settlement of RMB securities.
Brokers should review and ensure that their front and back office systems as well as operations are ready to support such client trading activities.
Broker may consider if there is a need to automate their systems such that inter-counter selling as well as transfer of securities between the two counters can be done automatically.
In any case, if brokers' systems cannot handle automatic inter-counter trading and transfer, brokers should have a set of guidelines advising their clients how inter-counter trading could be processed manually and clearly communicate to their clients how these trading activities could be supported and if any additional charges are imposed.
While from a regulatory standpoint, an investor may buy from one counter and sell the same on the other counter in the same day, he/she should bear in mind that:
o Such inter-counter day trades might lead to settlement failure of the sale trades at the CCASS on T+2 if the stocks of the buy trades are only delivered by CCASS at the last settlement run on T+2, leaving not enough time to transfer the stocks to the other counter to settle the sales trades on the same day. Although under the circumstances and provided that the concernedCCASS Participants ("CP") could provide necessary documentary evidence to HKSCC, HKSCC may grant T+3 buy-in exemption, the investors may still be subject to other handling fees imposed by his/her brokers, and the consideration of the sale trades may not be available to the investor from his/her broker until T+3 or even later;
o Some EPs and CPs may not provide inter-counter day trade services initially due to various reasons including operation, system limitations, associated settlement risks (as noted above) and other business consideration.
Therefore, an investor who wishes to conduct inter-counter day trades should consult his/her broker and fully understand the services that his/her broker may provide in this regard and the associated risks and fees.
What currency/currencies will investors/brokers use to pay for RMB IPOs and trades?
For RMB IPOs, investors and brokers will be able to pay the levies and other costs (such as commission) in RMB or HKD. For secondary market trading in RMB-traded securities, brokers will have to pay the SFC levy as well as other exchange and clearing fees in HKD. For stamp duty, HKEx's understanding is that the current legislation requires the stamp duty for securities transactions, including transactions in RMB-traded securities, to be paid in HKD.
Is 'Standing Intra Day Payment Instruction' service available?
CCASS Participants can select to set up a Standing Intra Day Payment Instruction through CCASS Terminals to receive refund of any excess cash prepayment and/or receive their CNS money obligations due from HKSCC before the generation of Intra Day Payment instructions by CHATS, which is at around 2:30 pm on each business day.
What is the settlement arrangement if the RMB bank account has yet to set up?
Where a Clearing Participant is in the process of opening a RMB bank account for CCASS money settlement purposes, HKSCC will make payment to the Clearing Participant by paper cheque or other means considered appropriate by HKSCC. For delivering Clearing Participants, payment will be made on the business day following the date of settlement. For receiving Clearing Participants, payment must be made directly into HKSCC’s designated RMB bank account before 5:45 pm on the date of settlement.
Can CCASS Participants set up a 'Standing Intra Day Payment Instruction' in RMB?
CCASS Participants can select to set up a Standing Intra Day Payment Instruction through CCASS terminals to receive Corporate Actions related payment (CA payment) before the generation of Intra Day Payment instruction by CHATS, which is at around 2:30 pm on each business day. CCASS Participants which do not opt to receive intra-day CA payments will continue to receive such payments via DCI at day-end.
Is the current fee schedule also applicable to RMB items?
Similar to the money settlement arrangement for HKD and USD transactions, there will also be a money settlement fee for RMB denominated transactions. Other than that, the existing tariffs stated in Section 21 and 22 of the CCASS Operational Procedures still apply.
Why do CCASS Participants need to set up a designated bank account for RMB and what are the advantages? Will there be any issues if a CCASS Participant does not set up a designated bank account at this moment?
CCASS Participants are required to set up a designated bank account for RMB if they are going to process CCASS transactions denominated in RMB electronically (e.g. receiving dividend payments in RMB if offered by issuers). Otherwise, HKSCC can only arrange for money settlement of RMB denominated transactions via cheque payment or such other means as considered appropriate by HKSCC. Therefore, Participants are strongly advised to set up the RMB bank accounts as soon as possible to avoid delay in providing RMB services to their clients.
A Participant can choose to set up a designated bank account for RMB later when it needs to process CCASS money transactions denominated in RMB. However, Participants should note that lead time is involved in setting up a designated bank account for RMB. They will not be able to handle money settlement of RMB denominated transactions electronically if they do not have a designated bank account for RMB. Therefore, CCASS Participants are strongly advised to set up a designated bank account for RMB as soon as possible to avoid delay in providing RMB services to their clients.
Are there any charges for setting up the designated bank account for RMB? How long does it take?
HKSCC does not charge any fees for setting up CCASS money settlement service in RMB. However, CCASS Participants have to contact their Designated Banks to find out the costs, time and procedures required to set up a RMB bank account. CCASS Participants are also required to submit a “Renminbi Direct Debit Authorisation Form” to HKSCC.
It normally takes about three weeks for HKSCC to complete the set-up process depending on when HKSCC receives confirmation from the Participant’s Designated Bank for RMB transactions and HKSCC’s RMB Agent Bank.
What are the CCASS admission criteria for Designated Banks for RMB?
Existing CCASS Designated Banks for HKD/USD should complete and return the ''Undertaking(s) for Renminbi'' together with a certified true copy of the board resolution authorising the execution of the Undertaking(s) and Questionnaire to HKSCC. In addition, a testing between HKICL and the Designated Bank is required if the Designated Bank selects to receive the RMB reports from HKICL in electronic file/tape form. HKICL issued a circular to its member banks on 12 August 2010 about the interface test arrangement. For details, please contact HKICL.
If a bank is not yet a CCASS Designated Bank, it should contact HKEx’s Cash Market – Participant Services (CM-PS) team and submit the prescribed application form. Banks which are interested in providing RMB money settlement service are also required to execute the Undertaking as mentioned in the above paragraph and do interface testing to receive the RMB reports from HKICL in electronic file/tape form. It may take four weeks to complete the application process. For details, please refer to Section 14.2.3 of the CCASS Operational Procedures or call CM-PS at 2840-3626.
Can OTP-C support trading of RMB products?
The Orion Trading Platform – Securities Market (OTP-C) is a multi-currency system which is capable of supporting transactions in RMB products (with currency code 'CNY’ in OTP-C) in a manner similar to that applicable to products denominated in HKD and USD.
How to calculate the stamp duty payable for transactions denominated in RMB?
As confirmed by Inland Revenue Department, the foreign currency denominated consideration of a transaction should be converted into HK dollar before applying the stamp duty rate. The stamp duty derived therefrom should then be rounded up to the nearest HK$1.
Example: a transaction of RMB10,000
Consideration =HK$11,710 (RMB10,000 @ exchange rate of 1.171)
Stamp duty @0.1% =HK$11.71
Stamp duty payable =HK$12.00 (rounded up to the nearest HK$1)
What are Renminbi (RMB) currency futures? What are their characteristics?
RMB currency futures are futures contracts based on the exchange rates between RMB and other currencies. HKEX’s first RMB currency futures contract is based on the currency pair USD/CNH. CNH refers to the RMB circulated in Hong Kong. They are the first exchange-traded currency futures settled in RMB.
HKEX's RMB currency futures contract is designed to provide a way for investors to hedge RMB exposure. It requires delivery of USD by the seller and payment of the Final Settlement Value in RMB by the buyer at maturity. Contract is quoted in RMB per USD and margined in RMB, with the trading and settlement fees charged in RMB. The final settlement price of the contract is based on the spot USD/CNY(HK) fixing published by the Treasury Markets Association (TMA) at 11:15 am on the Last Trading Day. The Last Trading Day is two business days prior to the Final Settlement Day, which is the third Wednesday of the Contract Month.
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.
Does 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.
What is the fund size of the TSF?
The fund size of the TSF is 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 is 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.
Does 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.
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) are not 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 will be updated and published on the HKEX website (Please click here).
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 OTP-C, 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.
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).
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”.
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.
How are the RMB FX Rates determined?
The TSF sources 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.
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.
Is there any input requirement when an EP wishes to input an order to buy or sell shares in OTP-C 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 OTP-C, 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 OTP-C 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.
Can an EP change the request for using the TSF for an order?
Before the TSF order is automatched on the OTP-C, 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.
Why does the TSF restrict the order types for buy trades?
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 OTP-C.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.
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 in OTP-C.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.
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”.
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. 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, 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.
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.
How does TSF FX settlement work?
While a bid/ask rate will apply to each TSF Exchange Trade 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.
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.
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.
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.
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.
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.