ENG-1998 — Page 118

FINANCIAL AND MONETARY AFFAIRS

78

Since December, the role of Hong Kong as the fund raising centre for the Mainland has been further enhanced by the listing of China's Treasury Bills on SEHK. The listing of the Treasury Bills, which commenced listing on the SEHK on December 16, 1998, was based upon an agreement between the Ministry of Finance and the SEHK which was signed in Hong Kong on January 18, 1999, witnessed by the Minister of Finance, Mr Xiang Huai Cheng, and the Chief Executive of the HKSAR, Mr Tung Chee Hwa.

Developments in Financial Infrastructure

The government is committed to improving Hong Kong's position as a premier financial centre by, among other things, providing a state-of-the-art financial infrastructure. To enhance the competitiveness of Hong Kong, the government considers it necessary to capitalise upon the latest developments in information technology and its application to enhance system security and efficiency of the financial infrastructure. Consultants will be engaged to study the business flow in various financial markets and focus on the strategic development of the financial technology architecture having regard to the global trend towards full automation and straight-through processing of financial transactions. A steering committee is planned to canvass the views of prominent representatives of the industry and experts on the subject in 1999. A full report of the studies is expected in 2000.

HKMA has worked closely with the banking community to enhance the robustness of Hong Kong's interbank payment system. With the effort of the HKMA and the banking industry in the past few years, Hong Kong's interbank payment system successfully changed to the new Real Time Gross Settlement (RTGS) system in December 1996.

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 can be obtained by the banks through the use of their Exchange Fund Bills and Notes for intraday repurchase (repo) agreements with the HKMA.

In 1998, the robustness and reliability of the system has been further enhanced by the setting up of a hot back-up centre in Kowloon. This back-up computer centre started operation in August 1998. In May 1998, the RTGS was linked to the equity clearing and settlement system operated by the Hongkong Clearing to provide delivery versus payment (DvP) facilities for share transactions to reduce the settlement risk.

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 243 CMU members, which are mostly financial institutions in Hong Kong,