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

The proposal was explained in a consultation paper published in November last year.  

Under the current arrangement, securities settlement at HKEx is on T+2 (two business days after the trade) but some money settlement is in the morning of T+3 (three business days after the trade) resulting in overnight credit risk for HKEx's securities clearing house and its Participants.  Under T+2 Finality arrangement, securities and money settlement is on T+2 with the introduction of a new interbank bulk settlement run in the evening of T+2 by Hong Kong Interbank Clearing Limited (HKICL).

HKEx received comments on the proposal from 29 market participants and industry associations.  Overall market feedback indicated strong support for T+2 Finality.  

HKEx will implement its proposal with minor modifications based on respondents' suggestions.  The modifications are:

• Extension of the money settlement instruction processing window for Designated Banks* from 1 hour (4:20 pm to 5:20 pm) to 1 hour and 40 minutes (4:05 pm to 5:45 pm); and
  
  
• Extension of the payment rejection cut-off time for CCASS payment items which represent Clearing Participants' money obligations to HKEx's securities clearing house to 8:00 pm.  

The extended payment rejection window will allow Designated Banks to take into account all client cheques deposited through their collection boxes before assessing the brokers' funding positions, and brokers will be able to preserve their money settlement arrangement with their clients with minimal impact to their daily operations and client service level.

"The new arrangement will bring finality of securities and money settlement on the same day, reduce the overnight credit risk of the securities market and align the money settlement arrangement in Hong Kong with the international best practices," said Derrick Fung, HKEx's Head of Clearing.

"We appreciate the comments we received from the Hong Kong Association of Banks and several broker associations on our original proposal and their support of our modified T+2 Finality arrangement,"  Mr Fung said.  "We also appreciate the comments and support from other respondents to our consultation paper and the assistance we received from the Hong Kong Monetary Authority and HKICL, which worked with us on the changes to our original proposal." 

HKEx aims to implement the modified T+2 Finality arrangement for CCASS money settlement by the third quarter of 2011.

The Consultation Paper on Introduction of a T+2 Finality Arrangement for CCASS Money Settlement, Consultation Conclusions on Introduction of a T+2 Finality Arrangement for CCASS Money Settlement and copies of respondents' submissions can be downloaded from the "News and Consultations - Market Consultations" section of the HKEx website.

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