Joseph Yam: A new euro clearing system for Hong Kong
Remarks by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, at the signing
ceremony for the appointment of Standard Chartered Bank as settlement institution for the euro
clearing system in Hong Kong, Hong Kong, 3 July 2002.
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We live in a financial world where boundaries and barriers are progressively collapsing, whether as the
result of conscious policy decisions in favour of liberalisation or because of the new vistas opened up
by the onward march of information technology.
Thus, restrictions on providing or using services across geographic or political borders are on the
decline. Particular transactional services, such as quoting, dealing, confirming, settling, delivering,
paying and safe-keeping, are increasingly footloose, in the sense that many of them can be readily
accessed from remote locations. Moreover, the development of interfaces between systems in
different parts of the world provides scope for continuous 24-hour real-time trading.
At the same time, the regulatory framework is tending towards standardisation around the world,
thereby reducing the potential for regulatory arbitrage between jurisdictions.
As a result of these various developments, the marketplace in which we can operate is potentially ever
larger, but at the same time the potential number of competitors is ever growing.
Against this background, financial centres must be nimble, competitive, efficient and safe, and alert to
the changing world, if they are to thrive. One of the essentials is that they must offer an effective and
robust financial infrastructure. Such is our aim in Hong Kong.
But this does not mean throwing money into each and every idea which comes along - there's no point
in constructing highways if no-one wants to drive down them. There must be a reasonable business
case. On the other hand, no venture no gain. The opening up of a footpath may lead to the emergence
of heavy traffic. Thus we have been selective in the initiatives which we support and, although not
every project may have been an unqualified success, examples such as our HKD RTGS system which
we pioneered in the mid-90s; the CMU which provides such an excellent settlement and custody
service for debt securities and which is being linked up with a growing number of overseas
counterparties; and the relatively recent USD clearing system; all of these present a strong track
record.
We are here today to mark another milestone in this infrastructural development - in the field of
clearing and payments. Our USD clearing system, introduced in 2000, has demonstrated that a niche
exists for services of this type in this part of the world. USD RTGS turnover has grown to about
3,000 transactions a day with a value of some US$6 billion; and over 1,000 USD cheques are being
processed daily. Enquiries and discussions with banks suggested to us that there was also a business
case for a roughly parallel service in euro. And so it is my pleasure to welcome you to this ceremony
today, formally to witness the appointment of Standard Chartered Bank as the Settlement Institution
for the new euro clearing system.
This system will enable a wide range of financial transactions in euro to be settled on a real-time basis
here in Hong Kong. Not only should this be useful to those involved with trade and remittances in
euro, but it should also facilitate financial institutions to manage international liquidity and investment
portfolios in Hong Kong. The system will encompass not only the best, internationally agreed,
principles of payment system design but also state-of-the-art technology. It will provide RTGS
settlement for euro denominated fund transfers; a linkage with the US dollar payment system to
provide real-time PvP settlement for EUR/USD transactions; and linkages with the CMU to provide
DvP settlement for euro-denominated debt securities, in readiness for the potential development of
that market. We expect to see all these features implemented by the second quarter of 2003. For the
moment there will be no cheque clearing capability, but this is something which could be added later if
there was sufficient demand.
As in the case of the US dollar clearing, we have adopted a private sector solution, with a commercial
bank as the Settlement Institution. This is not only consistent with the tradition in Hong Kong, but is
also in line with international practice and with the recommendations of the Bank for International
Settlements. As part of the agreement between the HKMA and Standard Chartered Bank, the latter
will in turn appoint Hong Kong Interbank Clearing Ltd, the current operator of the Hong Kong dollar
and US dollar payment systems, to develop and operate the euro system. The role of the HKMA will
be to oversee the design and implementation, and to ensure that the system meets the highest
international standards.
And so, Hong Kong will shortly have a pioneering facility for the efficient and secure conduct of euro
transactions in Asian time, as a further significant piece of our financial infrastructure. The benefits to
both local business and international customers, in both trade and finance, should be considerable. I
take this opportunity to thank and congratulate those who have worked hard to bring the project to its
present advanced stage in so short a time, and especially to thank Standard Chartered Bank for the
enthusiasm and professionalism which they have brought to the exercise. I wish every success to all
who will be involved in translating the design into reality.