A key component of Hong Kong’s financial services architecture is the Hong Kong Securities Clearing Company (HKSCC). It acts as Central Counterparty (CCP) and provides clearing services for transactions, facilitating global trade execution.

Its functions can sound complicated and confusing, but its role is a vital one for the efficient functioning of the trading environment. As a central counterparty, it fulfils a range of relatively easy to understand functions.

What is a Central Counterparty?

Central counterparty clearing houses (CCPs) have two key functions. They act as intermediaries in a transaction, offering a degree of certainty and removing the risk of a party defaulting on the trade. 

They also act as counterparties for buyers and sellers, guaranteeing trade terms even if one party defaults on the agreement. 

CCPs will take on the lion’s share of the credit risk for both parties when it comes to clearing and settling market transactions, which can give confidence to the parties involved in any global trade execution.

CCPs will collect enough money from each seller and buyer to ensure that any potential losses that are incurred are covered should anyone fail to follow through on an agreement. 

If a default does occur, the CCP will replace the trade at the current market price. This kind of security and confidence-building measure is crucial when it comes to global trade execution.

Ensuring Privacy & Efficiency

Central Counterparty clearing houses shield traders’ identities from each other and thereby ensure that the whole transaction remains as private and discreet as possible. It also protects trading firms against default from buyers and sellers who are matched by an electronic order book. 

The creditworthiness and credibility of these participants won’t be previously known. As CCPs considerably reduce the number of transactions that are being settled, they facilitate smooth operations across the entire trading system while reducing the value of the obligations. 

As a result, money can move much more efficiently among traders. This is crucial to the smooth functioning of markets, aiding global trade execution and reducing the risk of default or latency issues.

How does the HKSCC work?

The HKSCC currently acts as the CCP for a number of different securities transactions that are settled under the continuous net settlement (CNS) system. These are:

●     Exchange Trades

●     China Connect Securities Trades

●     Connect Markets

●     Clearing Agency Transactions

Both Exchange Trades and Clearing Agency Transactions are cleared and settled two days after the trade day. It does this by providing clearing services to transactions in eligible securities via the Central Clearing and Settlement System (CCASS). 

The CCASS determines the money and stock obligations of participants in a securities transaction such as global trade execution. It does this to ensure participants in the transaction can then fulfil their obligations, and provide or receive funds as agreed on the settlement date. 

The stock positions from the Exchange Trades and Clearing Agency Transactions are netted and settled together, with details of these securities transactions electronically transmitted on each trading day.

A trusted partner in the region

To effectively trade in the Asia-Pacific region, your global clearing broker should have a physical presence in the area as well as a depth of understanding of local markets. GIS HK has a wealth of knowledge and experience in Hong Kong and across the Asia-Pacific region

To find out more about our global trade execution and safe custody services, call +852 3018 3009 or email info@gishkltd.com

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