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FINANCIAL AND MONETARY AFFAIRS
well as in H-shares listed in Hong Kong. Many of the funds have only a short history and some are accessible to institutional investors only. At the end of 1994, these funds amounted to over US$190 million.
Developments in Financial Infrastructure
To remain internationally competitive, Hong Kong is giving priority to the development of a robust financial market infrastructure. To this end, the HKMA and the banking community have been working closely to identify, minimise and, as far as possible, eliminate the risk in Hong Kong's payment system.
Hong Kong's payment system is still primarily a paper-based system dominated by the use of cheques, with next day finality of settlement. In December 1993, the Working Party on Payment and Settlement System, comprising representatives from the HKMA and the industry, completed its study on Hong Kong's payment system and recommended that the territory move to Real Time Gross Settlement (RTGS) as soon as possible. The committee also recommended that more detailed studies be undertaken to assess the practical issues involved in introducing RTGS in Hong Kong, and that interim measures be adopted to improve the existing payment system and to reduce the value of paper clearing.
The Hong Kong Association of Banks, which operates the clearing house, accepted the recommendations and undertook a feasibility study on the implementation of RTGS. It is envisaged that the new RTGS system would comply with international standards and allow for domestic and international linkages to facilitate instantaneous 'delivery versus payment' in the domestic securities markets and real time 'payment versus payment' in cross-border multi-currency transactions.
Improvements in the debt clearing system for financial instruments are also important for speeding up the development of the Hong Kong dollar debt market. As a first step towards reducing transaction costs and settlement risk, the HKMA started the Central Moneymarkets Unit (CMU) four years ago for clearing Exchange Fund paper. The CMU, which is an electronic central clearing system that provides an efficient, safe and convenient clearing and custodian facility, extended its service to private sector debt securities at the beginning of 1994. Currently, there are 133 recognised dealers for the trading of Exchange Fund paper and 174 CMU members for the trading of private sector debt securities.
The CMU Service for private sector debt securities has developed rapidly. Since the start of the service on January 31, 1994, 143 issues of Hong Kong dollar debt, amounting to $31 billion, have been lodged with the service. Secondary market turnover in the private sector CMU instruments has increased gradually, with an average of $118 million in daily
turnover.
On October 1, the CMU added to its list of services the role of a payment agent. The CMU will disburse interest payments and principal redemptions to the respective CMU members holding CMU instruments, on condition that full payment has been received from the issuers/arrangers. Other projects in the pipeline for improving its services include the launching of a 'securities lending programme', expected in 1995.
Moving further towards building a multilateral network that links up different local and regional securities clearing centres, the CMU Service was hooked up with Euroclear and Cedel in December. These links, which are the first between a debt securities system in East