Hong Kong Exchanges and Clearing Limited (HKEx) today (Monday, 24 September) issued the attached Circular on the main features of the clearing arrangements for International Stock Futures and Options (ISFO), which will begin trading on 4 October.
Please note the Circular is only available in English.
Trading of International Stock Futures and Options (ISFO) will commence on 4 October 2001. In this respect, HKFE Clearing Corporation (HKCC) Participants are advised to note the following main features of the clearing arrangements.
1. Foreign Exchange Rate for Currency Conversion of Variation Adjustments
ISFO contracts will be traded in the home currency and settled in US Dollars. Variation adjustments arising from trades executed on a Trade day (T) in ISFO will be converted into US Dollars.
A. Daily Settlement
All variation adjustments arising from the daily settlement process will be settled the next day (other than Saturday) on which banks in Hong Kong are open for business (T+1). The Clearing House will select a foreign exchange rate equivalent to the mid-point of the prevailing bid and ask exchange rate as of the respective futures market close on T day for the purpose of currency conversion. The selected exchange rates of all currencies will be taken as the average of the followings:-
| Reuters Page "AFX=" |
At Market Close of the relevant ISFO Market |
| Bloomberg Page "[CRNCY]TKC7" |
At Market Close of the relevant ISFO Market |
B. Intra-day Variation Adjustments
All intra-day variation adjustments will be converted into US Dollars and Hong Kong Dollars depending on the nominated settlement currency of the HKCC Participant. Similar to above, the Clearing House will select a foreign exchange rate equivalent to the mid-point of the prevailing bid and ask exchange rate as of the time the intra-day margin process is triggered for currency conversion. The selected exchange rate of all currencies will be as follows:
| Same as daily settlement |
At the time of triggering |
|
intra-day margin process |
C. Last Trading Day Settlement Process
All variation adjustments and Exercise/Assignment settlement amounts on the last trading day (T) are settled on the Final Settlement Day. The exchange rate to be applied shall be as follows:
| Korean Won (KRW) |
Reuters Page "KFTC18"
(Official Fixing Rate)
|
9:00am Seoul Time |
| Taiwan Dollar (NT$) |
Reuters Page "TFEMA"
(Official Fixing Rate; the page will be changed to "TAIFX1" by the end of November 2001 and they are now parallel running) |
11:00am Taipei Time
|
| Japanese Yen (JPY) |
Same as Section 1A
(mid-point of prevailing bid and ask) |
At Market Close of the
expiring contract month |
2. SPAN Files Dissemination Time
SPAN Files for ISFO will be disseminated to HKCC Participants at 8:30p.m. Hong Kong time, each trading day. For your reference, the closing time of other markets are as follows:
| HK$ Settled Markets |
6:30pm HK Time |
| (Hang Seng Index Futures and Options Market, Mini Hang Seng Index Futures Market, MSCI China Free Index Futures Market, HIBOR Futures Market and Hong Kong Stock Futures) |
| CCY Market |
12:30am HK Time (Next Calendar Day) |
On the Last Trading Day of US Stock Futures and Options contracts (i.e. the Third Friday of every month), the SPAN files for such US Stock Futures and Options contracts will be available at 4:00pm HK Time on the Third Saturday of every month .
3. Intra-day Variation Adjustments
The Clearing House is entitled to make intra-day variation adjustment calls in ISFO. In line with the current HKCC Procedures where the settlement currency of the relevant Exchange Contract is a currency other than Hong Kong Dollar, a "collect only"?approach would be adopted. That is, any liabilities arising from the intra-day variation adjustments call must be collected via Direct Margin Debiting System (DMDS) while any profits arising from an intra-day variation adjustment will not be paid to HKCC Participants until T+1. HKCC Participants are required to submit instructions as usual on a normal trading business day for withdrawal of surplus funds.
4. Method of Providing Cover for Clearing House Margin
HKCC Participants may provide cover for their Clearing House margin liabilities by means of a deposit of cash with the Clearing House in an approved currency or currencies other than US Dollars. Approved Bank Guarantee, US Government Treasury Bills/Notes and Exchange Fund Bills/Notes are also allowed as cover for the Clearing House margin liabilities.
5. Trading on Public Holiday in Hong Kong
The ISFO Markets follow the holiday schedule of their home markets. As such, the ISFO Markets may be available for trading on public holidays in Hong Kong. It is recommended that HKCC Participants place sufficient cash deposits or arrange bank guarantees in advance in order to cover any liabilities that may arise from daily settlement or intra-day variation adjustments on such Hong Kong public holidays. If an HKCC Participant is unable to meet its intra-day margin calls for any reason, including bank closure, the Clearing House may restrict such Participant from opening new positions and may require compulsory close-outs. To mitigate the risk exposure of the Clearing House during public holidays in Hong Kong, the Clearing House may collect, prior to the public holiday, additional Clearing House Margin to cover potential market movement during the public holiday.
6. Separate Sets of House, Client and Registered Traders Accounts
Separate sets of House, Client and Registered Trader accounts will be maintained in ISFO contracts for each HKCC Participant according to the home market of the underlying shares. Similar to current HKCC arrangements, netting of balances of the same account type among different sets of accounts of an HKCC Participant will not be allowed unless the HKCC Participant has given standing instructions in advance to move surplus funds in one account type of one set of accounts to settle the margin call arising from deficit in the same account type of another set of accounts of the HKCC Participant.
7. Margin Offset
Margin offset will be allowed between Options contracts and their underlying Futures contracts.
8. Special Treatment of Final Settlement Day on a Public Holiday in Home Market
Owing to the holiday schedule of ISFO set forth in Section 5 above, there will be occasions when the Final Settlement Day of an ISFO contract will fall on a public holiday in the underlying home market. In such situation, the Clearing House will treat it as a normal settlement day and generate night-batch reports as usual at the end of such Final Settlement Day. HKCC Participants are advised to retrieve the night-batch reports of such Final Settlement Day for reconciliation and settlement to be made on the next day (other than Saturday) on which banks in Hong Kong are open for business (T+1) if any margin liability arises thereof.