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US Dollar Clearing System Set Up in Hong Kong
Yesterday, Hong Kong unveiled the new US dollar clearing system, which allows Hong Kong financial organizations to complete US dollar transactions real time in the Asian time zone instead of 12 hours later in New York.
Under the new system, products traded on the securities and derivatives market of the Hong Kong Exchanges and Clearing can be denominated and cleared in US. similarly, Nasdaq stocks traded in Hong Kong can also be settled in US dollars.
"With an efficient and reliable US dollar clearing system in Asia, the Herstatt risk - which is the foreign exchange risk related to time zone differences - associated currently with the settlement of US dollar denominated transactions in New York time, can be reduced, if not eliminated. This US dollar real time gross settlement (RTGS) system will be an important addition to the region's financial infrastructure and will strengthen Hong Kong's position as an international financial center," said Mr. Joseph Yam, Chief Executive of the Hong Kong Monetary Authority.
This system is divided into three phases. The first phase is to set up the US dollar RTGS system for interbank payments as well as delivery versus payment (DvP) settlement for US dollar denominated stocks traded in Hong Kong.
The second stage, which will begin September 25, will facilitate payment versus payment (PvP) settlement for foreign exchange transaction between US dollars and Hong Kong dollar.
The third stage, which will be introduced before the end of the year, will cover US dollar paper check clearing and the RTGS interface with the Central Moneymarkets Unit (CMU) for settling US dollar denominated debt securities. Customers will be able to open US dollar currency accounts with banks in Hong Kong, with the settlement cycle shortened to next-day settlement compared with the current two week period.
This March, the Hong Kong Monetary Authority commissioned this system and the Hongkong and Shanghai Banking Corporation Limited was appointed as the Settlement Institution.
Fifty-five banks as well as the HKMA will join as direct participants of the US dollar clearing system.
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