FINANCIAL AND MONETARY AFFAIRS
system successfully changed to the new Real Time Gross Settlement (RTGS) system in 1996.
The operator of the new payment system is the Hong Kong Interbank Clearing Limited (HKICL), a company jointly owned by the HKMA and the HKAB. The HKICL was set up in May 1995 to take over in phases the clearing functions provided by the former Management Bank of the Clearing House, the Hongkong and Shanghai Banking Corporation Limited. This process was completed in April 1997. The RTGS system is a single-tier settlement structure with all banks maintaining settlement accounts with the HKMA. All RTGS payments are settled in real time and are final, irrevocable and unconditional. The banks' settlement accounts are not allowed to go into overdraft. Intraday liquidity, which is often the most difficult issue facing any RTGS system, can be obtained by the banks through the use of their Exchange Fund Bills and Notes for intraday repurchase (repo) agreements with the HKMA.
The RTGS system has operated smoothly since its introduction. After a few initial teething problems, the banks have been able to comply with the Clearing House Automatic Transfer System (CHATS) throughput guidelines issued by the HKMA, which requires the settlement of not less than 35 per cent of the daily CHATS throughput by noon and 65 per cent by 2.30 pm each day. In order to further enhance the capacity, response time and resilience of the RTGS system, HKICL has upgraded its mainframe computer to a more powerful and faster model. The HKMA has also worked closely with the HKICL to set up off-site, 'hot' back-up facilities for HKICL's operating system to further enhance its robustness and resilience. Hot back-up facilities mean that data are transferred to the facilities in parallel to the main operating system. It is a real time full back-up that can immediately assume all functions when the main operating system breaks down. This back-up computer centre will start operation in 1998.
The RTGS system has provided the building block for Payment versus Payment (PvP) for foreign-exchange transactions upon establishment of linkages of payment systems between Hong Kong and other economies. The HKMA has reached agreement in principle with the People's Bank of China to establish a PvP link between the Hong Kong dollar payment system and the Renminbi payment system when China's National Automated Payment System (CNAPS) goes live on RTGS. A PvP link will reduce the settlement risk in foreign exchange transactions arising from the difference in timing in the final settlement of the two currencies involved. Initial discussions have also been held between Hong Kong, Australia and New Zealand on similar PvP linkages.
The Central Moneymarkets Unit (CMU) Service, which was established in 1990 and operated by the HKMA to provide a clearing and custodian system for Exchange Fund Bills and Notes, was extended to cover private sector debt issues in 1994. It has recorded remarkable growth since then and 260 CMU members, which are mostly financial institutions in Hong Kong, participate in the system. In 1997, there were 554 issues with a total value of $199 billion lodged with the CMU. In addition to Hong Kong dollar denominated debt instruments, the system started to accept foreign currency denominated debt instruments in 1996. In December 1997, a Securities Lending and Borrowing Programme for CMU private sector debt securities was introduced to all CMU members. It enhances the liquidity of private sector debt
77