20 September 2021
Clearing is the process through which purchases and sales of a variety of assets and securities are reconciled. Funds will be transferred directly from one financial institution to another, and the safe custody of funds will be guaranteed before settlement.
It’s an essential part of the trading process. It confirms the availability of funds, records the transfer, and then ensures that securities are delivered to the buyer. Any non-cleared funds will carry a settlement risk, and trades that don’t clear may lead to accounting errors where real money may be lost.
Clearinghouses are a vital part of the global financial infrastructure and help build and support confidence in the markets. They act as an intermediary for a transaction, in effect acting as counterparty for both the seller and the buyer, providing safe custody and other services to help ensure that a trade is completed as expected.
They charge a fee for their services, and when a trader or investor pays a commission to a broker, the clearing fee will usually be included in the price they are charged.
If a clearinghouse encounters a discrepancy, they will give the counterparties time to reconcile it independently. If the discrepancy is then reconciled, the trade will be resubmitted to the clearinghouse for settlement. It will be sent to the appropriate exchange committee for independent arbitration if it cannot be resolved.
The Hong Kong Exchanges and Clearing Limited (HKEx) operates the Hong Kong stock exchange, the futures exchange and the four clearinghouses in Hong Kong. It was established in March 2000 with the full backing of the Hong Kong government to help improve the futures and securities market and increase the competitiveness of Hong Kong markets. The government is the single largest shareholder.
The group supports the clearing and safe custody architecture of the territory. The four clearinghouses that it operates are Hong Kong Securities Clearing Company Limited (HKSCC), HKFE Clearing Corporation Limited (HKCC), the SEHK Options Clearing House Limited (SEOCH) and OTC Clearing Hong Kong Limited (OTC Clear).
This robust set of institutions provide their participants with an integrated set of services, including clearing, safe custody, depository and nominee activities.
The HKSCC acts as a Central Counterparty (CCP) and provides transaction clearing services via the Central Clearing and Settlement System (CCASS). HKCC was established to operate a clearinghouse to clear trades carried out on the markets served by the Hong Kong Futures Exchange Ltd and the SEHK.
Both clearinghouses act as central counterparties, provide safe custody and guarantee settlement of transactions. In addition to this, both clearinghouses also offer clearing services such as post-trade and position management and exercise and assignment. OTC Clear provides counterparty services for OTC derivative transactions.
These four subsidiaries of the majority state-owned Hong Kong Exchanges and Clearing Ltd provide a consistent and transparent set of clearing services for markets in the territory.
GIS HK offers a range of post-trade, global clearing and prime services across multiple currencies and equities, fixed income, government securities and options for the Hong Kong markets.
We can provide a range of post-trade services for our customers allowing them to focus on their core competencies.