10 May 2021
One of the critical pieces of financial architecture in Hong Kong is the Clearing House Automated Transfer System or CHATS. Global clearing and safe custody services operating in Hong Kong markets rely on CHATS to provide an efficient and secure means to transfer funds.
How it works is sometimes unclear, but understanding the mechanics of CHATS can be helpful when it comes to confidence in safe custody and global clearing services system to carry out what’s required.
CHATS is a real-time gross settlement (RTGS) system for the transfer of funds in Hong Kong. Hong Kong Interbank Clearing Limited operates it. This is a private company that’s jointly owned by the Hong Kong Association of Banks and the Hong Kong Monetary Authority.
Transactions take place using CHATS in four different currencies; Hong Kong Dollar, Renminbi, Euro and US Dollar.
RTGS systems provide safe custody banking, transfer of money, or securities from one bank to any other on a real-time basis. This means that a transaction isn’t subject to any waiting period, and it will be transferred immediately whenever possible.
They also provide for settlement on a gross basis, meaning that each global clearing services transaction is enacted on a purely one-to-one basis and won’t be bundled or netted with any other transaction. Once processed and settled, payments are final and can’t be revoked.
Transactions are, of course, dependent on the participants account with the clearinghouse containing sufficient funds. Payments that can’t be met due to insufficient funds are queued.
Each bank can cancel, alter and re-sequence any payments in their queue while providing for the safe custody of their client’s assets.
Banks can obtain interest-free intraday liquidity. They do this through repurchase agreements. This removes the need for banks to have to maintain large settlement account balances to cover their payments.
Repurchase agreements that are not reversed at the end of the business day are carried into overnight borrowing.
The clearinghouse for the Hong Kong Dollar (HKD) is the Hong Kong Monetary Authority or
HKMA. All licensed banks providing global clearing services and safe custody, and other services must maintain HKD settlement accounts with HKMA.
In 2015 there were 156 participating banks with HKD CHATS.
The CHATS clearinghouse for US Dollar transactions is the Hong Kong & Shanghai Banking Corporation (HSBC). They provide a range of services to participating banks, including intraday repurchase agreements and intraday liquidity via an overdraft facility.
There’s no requirement on clearance and settlement banks in Hong Kong to participate in USD CHATS, but they may choose to join as indirect or direct participants. Only direct participants have a USD settlement account with HSBC for CHATS payment transactions.
Banks act as indirect participants and are required to conduct their payment transactions through direct participants. Indirect CHATS Users are another membership category whose banks also use direct participants to conduct their transactions.
At the end of 2015, USD CHATS had 100 direct participant member banks, 24 indirect participant member banks, 87 Indirect CHAT User member banks, and 8 Third Party User member banks.
The experienced team at GIS HK can help you negotiate the trading process in Hong Kong and across the Asia-Pacific region. With real, local knowledge, we can help you maximise your investment potential and help you reach your financial goals.We’re always happy to answer any questions you might have about Hong Kong markets or the global clearing services, safe custody banking and other prime broker services we offer. Back to News