Y K Choi Deputy Chief Executive Hong Kong Monetary Authority Beijing‧Shanghai 6 - 7 June 2006
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Transcript of Y K Choi Deputy Chief Executive Hong Kong Monetary Authority Beijing‧Shanghai 6 - 7 June 2006
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Hong Kong Monetary Authority香港金融管理局
How Hong Kong’s multi-currency financial infrastructure platform helps meet the needs of Mainland banks in managing foreign exchange
settlement riskY K Choi
Deputy Chief ExecutiveHong Kong Monetary Authority
Beijing‧Shanghai6 - 7 June 2006
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Agenda
(1) Financial reforms in Mainland China
(2) Foreign exchange settlement risk on the Mainland
(3) How to leverage on Hong Kong’s settlement platform
(4) Hong Kong’s financial infrastructure
(5) Co-operation for development between Hong Kong and the Mainland
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Highlights of 11.5 Roadmap
Chapter 33 Stepping up financial reforms
Clause 2 – expedite the development for direct fund raising activities
– Actively develop equities, debt and futures markets
– Perfect financial market structure and functions
– Introduce channels through which funds can enter the market, increase the share of direct fund raising activities
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Highlights of 11.5 Roadmap
Clause 3 – perfect monetary fine-tuning mechanism
– Pursue steady development of currency markets, rationalise monetary policy transmission mechanism, promote interest rate liberalisation reforms
– Perfect managed floating exchange rate regime, moving gradually towards convertibility for the Renminbi’s (RMB) capital account items
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Reforms in Mainland’s foreign exchange market
FX reform measures introduced since mid-2005
– Perfect renminbi exchange rate formation mechanism
– Greater access to foreign exchange (FX) market: allowing qualified financial institutions and corporations to take part in the FX market
– Enrich the mode of FX transactions: introduce market-driven over-the-counter (OTC) FX trading mode
– Expand the variety of FX products: allowing interbank forward FX transactions and swap transactions between RMB and other foreign currencies
Qualified Domestic Institutional Investor (QDII) scheme introduced in mid-2006
– Allowing offshore investments by Mainland entities and individuals
Mainland’s FX market
– Of the average daily FX turnover of around US$1bn+ , the majority are associated with the USD, and remaining with HKD, euro and yen
– The USD and euro funds are predominantly settled in the US and Europe
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Foreign exchange settlement risk
• FX transactions for RMB against foreign currencies are respectively settled in different time zones
• Having the FX transactions settled overseas and impacted by the time zone difference, financial institutions involved are exposed to over 20 hours of “non-synchronised” settlement risk involving the entire settlement amount
this is referred to as the Herstatt Riskthe Herstatt Risk
• With OTC FX transactions gaining increasing popularity and the restrictions on offshore investments by Mainland entities and individuals lifted gradually, the amount of FX transactions that needs to be settled will increase substantially – the bigger the amount, the higher the risk
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Settlement risk for Settlement risk for USD/RMB FX transactionsUSD/RMB FX transactions
Bank A
Bank B
Bank A’sUS correspondent bank
Bank B’s US correspondent bank
Pay RMB funds during the day in the Mainland
Receive USD in
New York on the
same day (evening in
the Mainland)
Over 20 hrs of time zone differenceInvolving the entire principal amount:
Herstatt RiskHerstatt Risk
Mainland receives credit confirmation at 9am
on the next day
Wire payment instruction
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New York, USAMainland China
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Ensuring financial stability and integrity
Stepping up financial reforms and development
Financial and economic activities take off
Safe and efficient foreign currency settlement system
Tremendous Increase in FX turnover
Reduce settlement risk
Increase funding efficiency
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Meeting the objective for ensuring financial stability and integrity
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Hong Kong’s five major financial development strategies
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Strategies that facilitate financial markets development
on the Mainland:– Hong Kong financial institutions to go into the Mainland to provide
services
– Hong Kong to serve as a gateway for Mainland funds to come out
– Financial instruments issued in Hong Kong, particularly those issued
by Mainland enterprises, to be made available on the Mainland
– To enhance the capability of Hong Kong’s financial system to handle
renminbi-denominated transactions
– To strengthen financial infrastructure linkages
between Hong Kong and the Mainland
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Strategies that facilitate financial markets development
To further strengthen financial infrastructure linkages between Hong
Kong and the Mainland, Hong Kong has been actively developing
cross-border settlement arrangements with the Mainland to provide
convenient, safe and efficient settlement for cross-border financial
intermediation activities:
– To channel overseas savings into Mainland investments
– To channel Mainland savings into overseas investments
– To help expand the scope of business for Hong Kong’s financial sector
– To provide the Mainland with a greater diversity of financial services and
instruments
– To bring convenience to Mainland funds investing in Mainland-related
stocks and bonds issued in Hong Kong – To expand the RMB business as a pilot for moving towards full
convertibility for the RMB 10
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Hong Kong’s role for financial intermediation
Payment linkages with Mainland
HKD
Cross-border payment and
settlement platform
Multi-instrument settlement platform
Multi-currency payment platform
USD
EUR
Equity
Banking Service
Debt
CMU’s linkage with CDC, Mainland
Hong Kong
CMU’s linkage with Euroclear /
Clearstream
Mainland Overseas
RMB
Overseas investments
Mainland investments
Overseas savings
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Mainland savings
CMU = Central Moneymarkets Unit
CDC = China Government Securities Depository Trust & Clearing Co. Ltd.
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Hong Kong as a fund raising centre
Hong Kong has been pursuing new funds transfer and settlement arrangements to strengthen Hong Kong’s capability as a fund raising centre:
At the end of 2005,
Hong Kong has surpassed Japan to become Asia’s most prominent centre for initial public offerings (IPO) with the largest amount of IPO funds raised in Asia
Stock market capitalisation reached HK$8 trillion equivalent, ranking 8 th in the world (In May 2006, Hong Kong’ stock market capitalisation reached HK$10 trillion equivalent)
A total of 209 Mainland-related (H shares & red chips) companies were listed in Hong Kong’s stock exchange, representing 1/3 of the total market capitalisation
H shares & red chips raised as much as HK$180 billion, accounting for 60% of total funds raised and represented 40% of the total trading volume
The Bank of China has completed listing in Hong Kong’s stock exchange on 1 June. Its IPO attracted HK$270 billion funds for subscription representative to over 70 times of over-subscription. Together with other interbank payments, Hong Kong’s HKD payment system handled over HK$1 trillion funds that day.
The FX market registering an average daily turnover of over USD100 billion (about HKD800 billion) ranked 6th in the world
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Cross-border payment systems – facilitate cross-border financial intermediation
To provide highly efficient and low risk settlement service for commercial payments, remittances and FX transactions between Hong Kong and the Mainland:
– RTGS system : cross-border RTGS system linkages have been established with the Guangdong Province and Shenzhen city to provide cross-border HKD & USD RTGS payment service to banks in Hong Kong and the Mainland, thereby improving the efficiency for cross-border flow of funds and settlement efficiency
– Joint cheque clearing : cross-border joint cheque clearing facilities (for HKD, USD & RMB cheques) have been established with the Guangdong Province and Shenzhen city that promote the effectiveness and safety of cross-border cheque settlement
– Debt clearing system : the central debt clearing, settlement and custodian systems (ie the CMU in Hong Kong and the CDC in the Mainland) have established cross-border system linkages to facilitate cross-border debt securities settlement
– Hong Kong’s RMB business that provides specialised cross-border RMB payment and settlement service 13
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Mainland’s FX transactionsMainland’s FX transactions
- Utilising Hong Kong’s foreign - Utilising Hong Kong’s foreign
currency settlement platformcurrency settlement platform
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Hong Kong’s financial infrastructure
Multi-currency and multi-dimensional payment, settlement and custodian system that meets the world’s most advanced standards
Provide a safe and robust, comprehensive and efficient financial infrastructure platform for the smooth settlement of all types of financial transactions
Cater not only for market participants in Hong Kong, the multi-currency, same time zone settlement platform also serves the Mainland and Asia markets
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PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
Hong Kong’s multi-currency settlement functions
Real-time interbank transfer and settlement for HKD, USD and euro
funds in Hong Kong (The HKD RTGS system on average settles HK$600 bn
interbank funds transfer daily. The USD & EUR RTGS systems register an average daily
turnover of US$6.7 bn and EUR1.2 bn respectively)
HKD, USD, EURRTGS System
HKD & USD funds will be available on the next day following the
presentation of HKD or USD cheques to the bank
PvP settlement for multi-currency foreign exchange transactions
(USD/HKD, EUR/USD, EUR/HKD, HKD/CNY)
DvP settlement for securities transactions denominated in HKD, USD
& EUR
PvPPayment-versus-
Payment
DvPDelivery-versus-
Payment
HKD & USD cheques
16
GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
New measures in the light of Mainland’s FX reforms
The Hong Kong Monetary Authority (HKMA) has enhanced the functionalities of Hong Kong’s settlement systems:
Hong Kong’s multi-currency systems have incorporated new enhancements in April 2006 to specially provide cross-border settlement of the foreign currency legs of Mainland’s FX transactions in Hong Kong: Mainland’s FX transactions will be settled in the quickest manner with the highest liquidity management efficiency
17
GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
Utilising Hong Kong’s multi-currency settlement platform
The People’s Bank of China (PBOC) allows market participants engaging in OTC FX transactions to agree the settlement channel bilaterally:
– Mainland market participants engaging in FX transactions (such as banks, financial institutions, FX market makers, rural cooperatives, etc) should make greater use of Hong Kong’s foreign currency settlement platform to settle the foreign currency legs of RMB-related FX transactions
– Practice real time payment and receipt of foreign currency (HKD, USD & EUR) funds in Hong Kong: to reduce settlement risk; raise efficiency of managing foreign currency funds; and enhance funding efficiency
Achieving same time zone settlement of RMB and foreign currency funds on the Mainland and Hong Kong respectively to eliminate overnight risks
18
GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
Benefits of same time zone settlement for Mainland’s FX transactions
– Eliminate Herstatt risk for FX transactions arising from settlement in different time zones
– Raises efficiency in managing foreign currency liquidity
– Provide additional liquidity for intraday transactions, strengthen liquidity management
– Reduce operational risk
– Enjoy statutory protection for settlement finality under Hong Kong’s Clearing and Settlement Systems Ordinance
19
GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
Beijing / Shanghai Hong Kong
Bank A
Bank B
Bank A’s HK correspondent bank
Bank B’sHK correspondent bank
Pay RMB funds during the day
Receive foreign
currency funds on the same
day
Credit confirmation to be received on the same day
RMB-related FX transactionsRMB-related FX transactions- same time zone settlement via HK- same time zone settlement via HK
HKD USD EUR
Settlement Systems
Settlement Systems
Wire payment instruction
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Same time zone settlement
Zero time zone difference
GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
The choice ofBank Negara Malaysia
• Malaysia’s central bank has, after careful consideration, decided to link their Ringgit RENTAS RTGS system with Hong Kong’s USD settlement system to achieve cross-border PvP settlement for USD/Ringgit FX transactions, eliminating all FX settlement risk. This linkage will be launched by end-2006.
• HKMA is discussing with other central banks in this region on a similar arrangement: to link their domestic currency settlement system with Hong Kong’s USD settlement system to provide cross-border PvP settlement and eliminate FX settlement risk
21
GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
Development strategies for Mainland and Hong Kong’s settlement systems
• Most ideal to provide cross-border PvP settlement
between Mainland and Hong Kong
• The model is to develop linkage between
Mainland’s RMB settlement system (CNAPS) and
Hong Kong’s foreign currency settlement systems
to provide cross-border PvP settlement to
eliminate FX settlement risk entirely
22
GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
USD RTGS system (2000)
USD RTGS system (2000)
Central Moneymarkets
Unit (CMU)(1990)
HKD RTGS system (1996)
HKD RTGS system (1996)
Clearstream
AustraClear - Australia
AustraClear - New Zealand
South Korea
Guangdong Province
Continuous Linked Settlement
System (CLS)
Euroclear
Mainland China
CCASS (Equities)
Malaysia’s RENTAS RTGS system
PvP (2006)
Euro RTGS system(2003)
Euro RTGS system(2003)
PvP
PvP
PvP
DvP
DvP
DvP
DvP
DvP
Cross-border debt settlement system linkage
DvP: Delivery-versus-PaymentPvP: Payment-versus-PaymentCross-border payment and settlement system linkage
Shenzhen city
RMB Settlement
system (2006)
PvP
Overview of Hong Kong’s financial infrastructure
23
GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
Summary• Since the introduction of OTC FX transactions in January 2006 by the PBoC,
HKMA has conducted meetings with Mainland’s FX market makers and banks: the majority recognise the benefits of same time zone FX settlement in Hong Kong
• Among them, HSBC (Shanghai), Standard Chartered Bank (Shanghai), ABN Amro (Shanghai) and Bank of Communications have been using Hong Kong’s platform for FX settlement
• To fully reduce FX settlement risk, other banks, FX market makers and financial institutions are encouraged to direct their FX settlement to Hong Kong’s multi-currency platform
• In the rapidly growing FX market on the Mainland, it is hoped that Mainland financial institutions can make greater use of Hong Kong’s foreign currency systems to reduce settlement risk for themselves as well as their customers
• Let’s achieve same time zone settlement for RMB FX transactions to reduce FX settlement risk, and promote financial stability and integrity
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GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
HKMA Task Force on Same Time Zone Settlement
25
Esmond LeeHead (Market Systems Development Division)
Tel: (852) 2878 8198Fax: (852) 2509 3264Email: [email protected]
Haster TangSenior Manager (Payment Systems)Market Systems Development Division
Tel: (852) 2878 8268Fax: (852) 2878 8725Email: [email protected]
Sylvia YipSenior Manager (Market Systems)Market Systems Development Division
Tel: (852) 2878 1476Fax: (852) 2878 8725Email: [email protected]
Daniel LeongManager (Payment Systems)Market Systems Development Division
Tel: (852) 2878 1309Fax: (852) 2878 8725Email: [email protected]
Monetary Markets and Financial Infrastructure Department Monetary Markets and Financial Infrastructure Department
Monetary Markets and Financial Infrastructure Department Monetary Markets and Financial Infrastructure Department
GBP USD EUR
¥ ₤ € $ ₩ ¥
JPY CNY HKD
₨ ₩ $ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
¥ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
JPY CNY HKD
₨ ₩ ¥ ₨ ₣ ¥
AUD CAD GBP
¥ ₨ ₣ ¥ ₤ €
CHF USD EUR
€ $ ₨ ₩ ¥ ₨
CAD JPY NZD
$ ₨ ₩ ¥ ₨ ₣
THB USD EUR
₨ ₩ € ₨ ₣ ¥
THB CAD AUD
₨ ₩ ¥ ₨ ₣ ¥
PHP SGD KRW
GBP USD EUR
¥ ₤ € $ ₩ ¥
PHP SGD KRW
Thank you!
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