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Hong Kong Exchanges and Clearing Limited (HKEx) published its "Consultation Conclusions on Introduction of a T+2 Finality Arrangement for CCASS Money Settlement" on 7 July 2011 (Consultation Conclusions) in response to the corresponding consultation paper published on 27 November 2009 pursuant to which a new T+2 Finality arrangement for money settlement in the Central Clearing and Settlement System (CCASS) established and operated by Hong Kong Securities Clearing Company Limited (HKSCC) was introduced on 25 July 2011. The major purpose of the new arrangement is to reduce the overnight credit risk of the securities market and align the money settlement arrangement in Hong Kong with the international best practices by bringing finality of securities and money settlements on the same day.

Previous Arrangement

The Hong Kong securities market adopts a T+2 settlement period. Before the introduction of the new T+2 Finality arrangement, trades (Exchange Trades) concluded on The Stock Exchange of Hong Kong Limited (SEHK) were settled two business days after the trade day. While securities settlement for Exchange Trades took place in CCASS on T+2, some related money obligations were settled through the overnight interbank bulk settlement processes operated by Hong Kong Interbank Clearing Limited (HKICL) in the morning of T+3. A majority of Exchange Trades by value were settled on T+2 under a process called prepayment. However, where prepayment was not involved, such settlement mechanism would result in a one business day gap between securities and money settlements.

T+2 Finality Arrangement

In summary, the new T+2 Finality arrangement introduces a new interbank bulk settlement run which commences at 5:50 pm on every business day to support money settlement relating to Exchange Trades and other relevant trades on T+2. Under the arrangement:

  • designated banks should complete the processing of CCASS money settlement instructions by 5:45pm before the interbank bulk settlement run commences at 5:50 pm; and
  • designated banks can submit rejected CCASS payment items which represent clearing participants’ payment obligations (and cash collateral if any) to HKSCC by 8:00 pm after the completion of the interbank bulk settlement run if this has not been done so by 5:45 pm.

Copies of the Consultation Conclusions can be downloaded via the link below:

http://www.hkex.com.hk/eng/newsconsul/mktconsul/Documents/cp200911cc.pdf