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FINANCIAL AND MONETARY AFFAIRS
system in December 1996. Over the past three years, the system has provided smooth and efficient settlement for interbank payments. 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, transaction in transaction basis across the books of the HKMA. The banks' settlement accounts are not allowed to go into overdraft. Intraday liquidity can be obtained by the banks through the use of their Exchange Fund Bills and Notes for intraday repurchase (repo) agreements with the HKMA.
With a view to further improving the reliability of the RTGS system, a hot back-up centre was set up in Kowloon. This back-up computer centre started operation in August 1998. Building upon the capability of the RTGS system, the HKMA has extended the Delivery versus Payment (DvP) facility for debt securities transaction to share transactions. A link between Hong Kong Interbank Clearing Limited and the Central Clearing and Settlement System was set up in May 1998 to provide Delivery versus Payment facility for shares in order to reduce risk and improve settlement efficiency.
In order to speed up the processing of Hong Kong dollar cheques presented in Shenzhen, the HKMA and the Shenzhen Branch of the People's Bank of China entered into a Memorandum of Understanding to operate a joint clearing facility for Hong Kong dollar cheques. This joint clearing arrangement, which was implemented in January 1998, reduced the processing time from 14 days to two days.
The Central Moneymarkets Unit (CMU) Service was established in 1990 and operated by the HKMA to provide a clearing and custodian system for Exchange Fund Bills and Notes. In 1994, the HKMA extended the service to cover Hong Kong dollar private sector debt issues. It has recorded remarkable growth since then and 217 CMU members, which are mostly financial institutions in Hong Kong, participate in the system. At the end of December, there were 872 issues with a total value of $233 billion lodged with the CMU. In addition to Hong Kong dollar denominated debt instruments, the system also accepts foreign currency denominated debt instruments. The Securities Lending and Borrowing Programme for CMU private sector debt securities has enhanced the liquidity of private sector debt securities in the secondary market through the market-making process.
The CMU system was fully integrated with the new interbank payment system when the latter went live on RTGS in December 1996. DvP, both real time and end- of-day, became available. This matches international best practice in providing efficient, robust and risk-free clearing and settlement facilities for debt securities.
The CMU was linked to Euroclear and Cedel, the two largest international clearing systems in the world, in December 1994. These links, the first of their kind in East Asia, allow overseas investors and traders easy access to the Hong Kong dollar debt market. The HKMA continued to expand the network of bilateral linkages between the CMU and other central securities depositories (CSDs) in the region to facilitate cross-border trading and holding of debt securities and to reduce the settlement risk. Following the linkages with Australia and New Zealand in December 1997 and in April 1998 respectively, the CMU established a linkage with the CSD in South Korea in September.
In April, the HKMA arranged a $10 billion Note Issuance Programme for the Kowloon-Canton Railway Corporation (KCRC). Notes issued under this programme