Hong Kong Exchanges and Clearing Limited (HKEx) today (Friday) published a consultation paper on the introduction of a T+2 Finality arrangement for money settlement in CCASS, the Central Clearing and Settlement System for the Hong Kong securities market.

The aim of the proposed arrangement is to reduce credit risks faced by Hong Kong Securities Clearing Company Limited (HKSCC) and its Participants by finalising both securities and money settlement on the same day.  The arrangement would apply to both Exchange Trades and Settlement Instruction transactions in CCASS*.

Currently, securities settlement for Exchange Trades is done in CCASS on T+2 (two business days after the trade) whereas the related money obligations are settled through Hong Kong Interbank Clearing Limited (HKICL) in the morning of T+3 (three business days after the trade).  Since securities settlement takes place one business day before money settlement, the parties with money receivable positions are exposed to credit risks for one business day.

HKSCC has worked closely with the Hong Kong Monetary Authority and HKICL and now proposes to add a new interbank bulk settlement run in the evening of T+2 which would bring finality of securities and money settlement on the same day (both securities and money settlement would have to be completed on T+2).

The consultation paper comprises background information of the existing CCASS money settlement mechanism, reasons for changing the mechanism, a description of the proposed T+2 Finality arrangement and the initial market opinions on the arrangement.

The consultation paper can be downloaded from the HKEx website.  Interested parties are encouraged to respond to the consultation paper by completing and submitting the questionnaire.

The deadline for the submission of comments is 26 February 2010.