Hong Kong Exchanges and Clearing Limited (HKEx) has published a paper for market consultation on the proposed model and associated details for implementing and operating third-party clearing (TPC).
Under TPC, clearing and settlement obligations for stock exchange transactions may be transferred from an exchange participant to a designated general clearing participant (GCP), allowing exchange participants the option to outsource clearing and settlement of their stock exchange trades. Under this arrangement, the exchange participants will be classified as non-clearing participants (NCP).
TPC will create two new categories of central clearing and settlement system (CCASS) participant, the GCP and the direct clearing participant (DCP). Exchange participants who continue to clear and settle their own trades will be reclassified as DCP and will retain the same rights and obligations as current CCASS broker participants.
A GCP will be either a registered dealer (with or without exchange trading rights) under the Securities Ordinance or an authorised institution under the Banking Ordinance.
A key advantage for exchange participants choosing to outsource their clearing arrangements is that they will not need to meet the funding requirements arising from CCASS risk management measures if they transfer their clearing and settlement obligations to a GCP, says the exchange.
It is also anticipated that settlement risk in CCASS may be reduced with the higher netting efficiency resulting from transaction settlements being concentrated in fewer clearing participants.
HKEx is reviewing and seeking market comments on the detailed requirements for implementing TPC, including operational considerations, changes to regulations and procedures, and GCP admission criteria.