1

Benefits of a US Dollar Clearing System

Enhance Hong Kong’s financial infrastructure– help to develop the markets in US dollar denominated

equities and debt securities in Hong Kong– attract US dollar denominated trades in the Region to

settle in Hong Kong

Enhance settlement efficiency and reduce settlement risk– PvP link with Hong Kong dollar– DvP for US dollar denominated securities– US dollar paper cheque clearing facilities

Annex

2

Contractual Framework

HKMA

HSBC

HKICL

Appoints HSBC to be the settlement institution for a franchise period of 5 years

Appoints HKICL as its clearing agent during the franchise period

3

Settlement Structure

HSBC

PB PB PB PB

Settlement Institution

PB = Participating BankIP = Indirect Participants

IP IPIP IP IPIP IP IPIP IP IPIP

4

Clearing Facilities

US dollar RTGS - US dollar payment settled in real-time across the book of the settlement institution will be final and irrevocable.

US dollar cheque clearing - US dollar cheques settled on a next day and multilateral netting basis.

PvP settlement for Hong Kong dollar / US dollar foreign exchange transactions through linkages with the Hong Kong dollar clearing system.

DvP settlement for US dollar denominated debt securities and shares through linkages with respective clearing houses, e.g. CCASS and CMU.

5

Implementation Timetable

CHATS with overdraft facilities but without August 2000 CMUP interface

ECG clearing for CCASS items August 2000

Payment vs. Payment September 2000

Paper cheque clearing December 2000

CMUP interface December 2000