The Stock Exchange of Hong Kong announced today (Thursday) the market infrastructure for the tendering and trading of EFN, Exchange Fund Notes. Issued on behalf of the Hong Kong Government for the account of the Exchange Fund by the HKMA, Hong Kong Monetary Authority, EFN are scheduled to be listed on the Exchange in the third quarter of the year.
Lee Hon Chiu, Chairman of the Exchange, said, "Exchange trading of debt securities increases the transparency of corporate borrowing, and that will benefit the market and investors. It also increases the liquidity of debt securities and the market provides an additional source of funds for issuers."
"One of the Exchange's objectives is to develop into a full services securities market. Trading in EFN and other debt securities will expand the Exchange's product range. It will also help to realise the full potential of the debt securities market," Mr Lee added.
The principal features of the market infrastructure for trading of EFN on the Exchange include:
Tendering
Details for tendering will be announced by the HKMA at least four working days ahead of a new issue. Bidders are required to state clearly the bid price and desired quantity (HK$50,000 per board lot) in their tender. Upon closure of the invitation to tender, accepted bids will be arranged in descending price order until all the bonds on offer have been allocated. Bids whose prices exceed the lowest acceptable price will receive the full quantity of their application. Those with prices equal to the lowest acceptable may be allotted the full quantity or a portion of the quantity they desire.
Trading platform
The existing trading platform of AMS, the automatic order matching and execution system, will be used.
Settlement
Trades executed in AMS will be settled through CCASS, the Central Clearing and Settlement System, operated by the Hong Kong Securities Clearing Company, on a T+2 basis in line with existing practices. Settlement will initially be on a trade-for-trade basis, but may later migrate to Continuous Net Settlement. A linkage will be established to allow free-of-payment transfers between participants of CMU, the Central Moneymarkets Unit of the HKMA, and CCASS. Trading will be scripless. Investors' EFN holdings will be credited into their accounts with CCASS, or the CCASS accounts of their designated custodians or Exchange members.
Price Information
Price information on the Exchange EFN market will be displayed by AMS and made available to information vendors as at present. Yields for quote in the over-the-counter market will be also disseminated.
Minimum Note Size
The minimum transaction size in the Exchange EFN market will be HK$50,000.
Board Lot
HK$50,000 nominal value.
Spread Size
The spread size will be 0.05%, representing a price change of five Hong Kong cents for a trading unit with a face value of HK$100.
Brokerage Commission
Not less than 0.1% of the value of the transaction, with a minimum commission of HK$50.
Transaction Levy
The transaction levy remains at 0.011%, the same as for equity securities. Successful bids for EFN in tendering are not subject to transaction levy.
Stamp Duty
No stamp duty will be imposed for trading of EFN.
Short Selling
No short selling of EFN on the Exchange will be allowed.
The findings of a recently conducted investor survey indicated that the general public was interested in bond market but they had little knowledge of this type of investment. The Exchange plans to launch a series of educational programmes prior to the tendering for EFN. These educational activities will be held for retail investors from now to early August, including public seminars, roadshows at large shopping malls and other educational activities. The Exchange hopes that retail investors will gain a better understanding of the bond market by taking part in these activities.
For investors' easy reference, the Exchange has designed an information leaflet featuring the advantages of investing in the bond market, and the features of EFN. Free copies of the leaflets are available at the reception counter of the Exchange. Information about EFN has also been posted on the Exchange's website at http://www.sehk.com.hk.
Corporate Communications Department