After months of trials, the Hong Kong Monetary Authority has flicked the switch on a fully-automated link with Euroclear, the Brussels-based central securities depository. The real-time link allows non-Euroclear members to hold and settle international debt securities through their Central Moneymarkets Unit (CMU) accounts.
By allowing investors to channel their trades through the CMU they get access to the huge pool of securities lodged with Euroclear. The real-time nature of the new service means that investors can settle their cross-border transactions more efficiently, cost-effectively, with lower-risk and in their own time zone. It also gives them greater control over their liquidity and promises to be less costly.
Christina Lam, who runs the Hong Kong office of Euroclear, says the service will benefit market participants who are unable to join the Euroclear network. "There are a lot of domestic brokers which don't have enough volume to qualify as a Euroclear member but now they have the option of settling through the CMU system while still dealing in Euroclear instruments."
The new service supplements an existing link from Euroclear to the CMU that has been in operation since 1994 and allows Euroclear clients to settle debt securities lodged with the CMU. Under this arrangement all settlements went through HSBC. The new link removes this process but HSBC still operates as the depository and the sub-custodian in Hong Kong. The total value of overseas holdings in the CMU is HK$19 billion.
Commenting on the arrangement, chief executive of the HKMA, Joseph Yam, said: "The new link is an important addition to Hong Kong's financial infrastructure. It offers a highly efficient channel through which investors in Hong Kong and the region can access securities held by Euroclear."
It is expected that the infrastructure now in place between Hong Kong and Brussels will help to promote the development of an Asian bond market.