XN000022-1996-09-06 — Page 6

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He said Hong Kong had sought to institute reforms to counter risks identified by the G10 Committee, such as credit risk, Herstatt risk and systemic risk.

"We have taken three important initiatives in recent years, represented by the three acronyms Real Time Gross Settlement (RTGS), Delivery versus Payment (DvP) and Payment versus Payment (PvP)," he said.

Mr Tsang said before Christmas this year, Hong Kong would have implemented an inter-bank payment system based on RTGS principles.

Under the new system, payment is settled on a real-time basis and, once executed, is considered final and irrevocable.

"Such finality and irrevocability will anchor the stability of the payment and settlement system and will serve as a fundamental building block for DvP and PvP," he said.

"DvP concerns a major upgrade of our debt market clearing system. The Central Moneymarkets Unit (CMU) operated by the Hong Kong Monetary Authority was originally set up for the clearing of Exchange Fund paper.

"The CMU extended its service to private sector instruments in 1994. Our plan is to enhance CMU to become an integral part of the implementation of RTGS system which will have real-time DvP capability.

"The third initiative PvP is still in the pipeline. After the implementation of RTGS, our next goal is to achieve bilateral PvP linkages with other overseas payment systems."

Mr Tsang said the Hong Kong Monetary Authority had also reached agreement in principle with the People's Bank of China to establish a PvP link between Hong Kong dollar payment system and China's National Automated Payment System when both had gone live on the RTGS system.

"These initiatives have set the scene for Hong Kong's financial markets to integrate further with the international markets," he said.

Mr Tsang noted that the Hong Kong Futures Exchange and the Philadelphia Stock Exchange had joined forces to set up a facility in Hong Kong for trading currency options contracts during Asian business hours.