Hong Kong Securities Clearing Company LimitedHong Kong Securities Clearing Company Limited

June 2008 - BaliJune 2008 - Bali

1010thth ACG Cross-Training Seminar ACG Cross-Training Seminar

STP - CCASS Participant GatewaySTP - CCASS Participant Gateway

2

Agenda

Introduction Clearing House : HKSCC

CCASS Key features, Operations, Access channels

CCASS Participant Gateway (PG) Benefits Overview System components, Key features

Straight Through Processing C3T and PG

Q & A

3

• HKSCC was incorporated on 5 May 1989 and was recognized as clearing house on 28 May 1992

• Merged with SEHK and HKFE, HKSCC became a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx) on 6 Mar 2000

• What is CCASS ?• Central Clearing And Settlement System

• It is a system providing book entry settlement for securities in cash market

• Ordinary shares, preference shares, registered warrants, PAL, unit trusts, funds, debt securities, structured products (e.g. derivative warrants, callable bull/bear contracts and listed equity linked instruments) listed on the Stock Exchange are eligible for admission into CCASS

Introduction of Clearing House : HKSCC

4

• Centralised

– A centralised system for all market intermediaries to transact business

• Electronic linkage– All Participants must be electronically linked with CCASS

• Electronic Book Entry System– Settlement is done on a book-entry basis where no physical movement of

certificates and cash is involved– Securities and cash are exchanged on a Delivery Versus Payment basis

• CCASS Participant

Seven categories of Participants: Custodian Participants, Direct Clearing Participants, General Clearing Participants, Investor Participants, Clearing Agency Participants, Stock Lender Participants and Stock Pledgee Participants.

CCASS: Key features

5

CCASS Operations

HKEx AMSHKEx AMS

CCASS

Selling Broker

Buying Broker

Delivering

Clearing

Participant

Receiving

Clearing

Participant

(2a) HKSCC as the counter-party for securities and money settlement

(2b) HKSCC as the facilitator for securities settlement and, where applicable, for money settlement

(3) Securities transfer between participants’stock accounts

Custodian / Stock lender / Stock pledgee

/ Clearing agencyInvestor

Order

(1)

Order

(1)

Trade Data

(2a)

(2b)

(3)

(2a)

(2b)

(3)

(3) (4)

Securities settlement

Money settlement

SIs or ISIs

Input or affirm ISIs

HKEx AMSHKEx AMS

CCASS

Selling Broker

Buying Broker

Delivering

Clearing

Participant

Receiving

Clearing

Participant

(2a) HKSCC as the counter-party for securities and money settlement

(2b) HKSCC as the facilitator for securities settlement and, where applicable, for money settlement

(3) Securities transfer between participants’stock accounts

Custodian / Stock lender / Stock pledgee

/ Clearing agencyInvestor

Order

(1)

Order

(1)

Trade Data

(2a)

(2b)

(3)

(2a)

(2b)

(3)

(3) (4)

Securities settlement

Money settlement

SIs or ISIs

Input or affirm ISIs

6

Access to CCASS

Five channels for Participants to access CCASS:

CCASSCCASS

CCASS Terminals

Participant Gateway

Service Counter

CCASS Phone System

CCASS Internet System

7

Access to CCASS - C3T & PG

In the CCASS Architecture Upgrade Project, two Communication Channels were developed as part of technology upgrade:

CCASS/3 Terminal (C3T)• Access to CCASS through a browser-based terminal• C3T Functions: Enquire portfolios, movements and transactions; input data, upload files and download reports Participant Gateway (PG)• A technical device installed at the Participants’ premises to provide an access point through which Participants’ back office systems can communicate with CCASS on a message basis • Adoption of PG is optional to CCASS participants

Both C3T Functions and PG Messages were processed by the mainframe in a similar fashion

8

Network Connectivity- C3T & PG

• C3T and PG are connected to the CCASS Host system via SDNet• It uses the TCP/IP protocols with high security protection by means of firewall and intrusion detection systems

CCASS/3

Terminal (C3T)

Participant Supplied Systems (PSS) [1]

ParticipantGateway (PG)

API

HTTPS

HTTPS

FinNetFinNetHTML

ISO / User Defined Messages

ParticipantGateway (PG)

ISO / User Defined Messages

CCASS/3CCASS/3CCASS/3Frame Relay WAN or

ISDN

SDNetPG / PSS

CCASS/3 Terminal

9

C3T (Browser based interface)

10

PG(Message based system)

Wed Dec 19 17:00:55 CST 2007 Send 0 :{1:CMT1n009bsgxv00000446}{2:I540B01323X}{4::16R:GENL:20C::SEME//123455004A00002:23G:NEWM:98A::PREP//20071111:16S:GENL:16R:TRADDET:98A::SETT//20071111:35B:/HK/1:16S:TRADDET:16R:FIAC:36B::SETT//UNIT/2000,:97A::SAFE//01:16S:FIAC:16R:SETDET:22F::STCO/CCAS/DINR:22F::SETR/CCAS/RTRL:16R:SETPRTY:95R::DEAG/CCAS/H00001:16S:SETPRTY:16R:SETPRTY:95Q::BUYR//abc company:97A::SAFE//1234567890:16S:SETPRTY:16R:AMT:19A::SETT//HKD0,:16S:AMT:16S:SETDET-}{5:{CHK:0000000062CA5359}}

Wed Dec 19 17:01:00 CST2007Received: {1:CMT1n009bsgxv00000165}{2:O598B01323X}{4::20:PG87860000502805:12:001:77E::20C::PREV//123455004A00002:20C::SIIN//I16181312:25D::PROC//SUCC:70E::ERRE//EMSG/RECORD ADDED SUCCESSFULLY/ENUM/-2003-}{5:{CHK:00000000D3611177}}

Input Message Output Message

Example: Input Settlement Instruction (SI)

11

1. Straight-through-processing (STP)Using the PG access mode, CCASS/3 functions are performed by thetransmission of standard messages. Transactions input to the PSScan be routed to CCASS/3 directly, without the need to re-input toCCASS via C3T

2. Real-time data feed to CCASS

3. No time constraint for instruction processing 4. Tightening up the internal control without manual intervention

5. Cost effectivenessMost suitable for high volume data exchange without the need to gothrough the input processing via CCASS/3

Benefits of using PG

12

• An alternative access channel to CCASS

• PG is a Windows 2000-based device installed at the participant’s premises

• It is designed to support participant back office system (Participant Supplied System or PSS)

• It facilitates a direct electronic interface between PSS and CCASS with the aim to achieve data straight through processing eventually

• PG is a message-based gateway. All communications between PSS and PG are done through messages

• Messages follow the SWIFT ISO15022 as possible.

• In general, each message sent from and received at PSS can represent a business transaction in CCASS

Overview of PG

13

• PG acts as a router to route requests and responses between PSS and CCASS

Example: Input Settlement Instruction (SI)

Send an input

message for delivery / receipt of securities either FOP

or DVP

Return a reply

message specifying the SI input

no. as a unique

reference to the

instruction

PSS CCASS/3Input Message

Output Message

Overview of PG

14

• To meet international standards in providing open access and connectivity for CCASS Participants to access CCASS

• It will bring Hong Kong into line with prevailing as well as emerging industry standards and will prepare the Hong Kong market to meet the challenges of increasing globalization of financial markets

Aim of developing PG

RouterIP-based

WAN

PGPSS

IP-basedLAN

• ISO 15022 Securities Messaging Standard (“ISO Standard”) is adopted as the messaging standard which pave the road for Straight Through Processing

15

There are mainly 3 components in a PG system:

• PG Administrator Main Window - It is a front-end GUI interface - A participant can perform login/logout from C/3, check the communication

status between PSS and C/3 etc.

• PG Engine - It serves as a common architecture component in PG that provides the

technical services - It allows an integration of different electronic exchange platforms, information

providers

• PG Application Programming Interface (API) - It provides an open system that participants can attach their own applications.

PG: System components

16

• Message Routing - route requests and responses between PSS and CCASS

• Support for concurrent transactions - support multiple transactions sent from PSS concurrently by using PG-

API

• Message encryption and authentication - ensure secured transmission between PSS and C/3 - smart card for its authentication to C/3 - PSS’s authentication to PG via PG-API : PSS ID and Password

• Asynchronous message processing

- distribute CCASS broadcast message and notification to PSS

PG: Key features

17

Terminal input

Participants input instructions via C3T and print out CCASSreports in text format

STP - Batch File Upload • Instead of inputting instruction one at a time by on-line data entry, Participant may use batch file containing a number of instructions and upload to the HKSCC host computer to save effort

• The batch file is a DOS file created according to a certain format stipulated by HKSCC.

• After uploading, CCASS will validate and processed the uploaded batch files upon receipt or at scheduled times

Straight through processing- C3T

CCASS/3Terminal

18

• Input control report will be generated to indicate which records are rejected and give a summary of result for each validated batch file

• Batch upload function is suitable for participant with a high volume of instructions. Subscription to this service is not required.

STP - Report Data Download

• Participant can download the CCASS reports in data file format and process the downloaded report files according to their own internal processing requirements• Data file format are available for most of CCASS reports

Participants may develop back office system to capture and process the data files to streamline their internal processing and avoid duplicating efforts in manually rekeying instructions into CCASS

Straight through processing- C3T

19

• Participants can connect their own back-office systems (Participant Supplied System, PSS) to CCASS through PG

• By integrating PSS to PG (via PG-API), participants can design their clearing and settlement back-end process and front-end user interface to meet their business and operational requirement

• PG is responsible for communicating with PSS but not further down to the other backend system

Straight through processing- PG

TCP/IP LAN*IP-based Wan

PGPSS

In-house System

TCP/IP LAN*

*Note:Dedicated or Sharednetwork

20

Straight through processing- PG

Daily operation flow in PSS

(1) PG User Sign-OnPSS PG C/3

(2) PSS Sign-on

(3) B/c and Notification subscription

(4) Data Download (4) Data Download

(5) Online Activities,Reports and Data Files Download

(5) Online Activities,Reports and Data Files Download

(7) Overnight Report Download (7) Overnight Report Download

(8) PSS Sign-out

(8) PG User Sign-Out

(6) Broadcast and Notifications (6) Broadcast and Notifications

21

• PSS is the main initiator for both online and batch transactions. PSS can initiate business transaction, file upload, report / file download and receive broadcast message & notification

• All transactions are based on the Request-Response processing, PSS will have to wait for the response from C/3 for every transaction sent. An end-to-end transaction is considered complete once the Txn-Response is received.

• Transactions input to the PSS can be routed to CCASS/3 directly, without the need to re-input to CCASS via C3T • This facilitates straight through processing for improved operational efficiency and reduced risk

Straight through processing- PG

(1)Txn Request (2)Txn Request

(3)Txn Response(4)Txn Response

PSS

Initiate ad hoc txn Receive

synchronousresponse

PG C/3

Route TxnRequest/Response tocorrespondingparties

Validate Txn Perform update or

query Generate Ref Key Format result

Notify result

22

CCASS Functions supportedby PG

All functions supported by CCASS/3 via PG can be categorised into 3 groups

PSS C/3

Asynchronous Message(AM) Receive AM

Response tobusiness txn

File Upload

File Download

Business Transaction Initiate businesstxn

Initiate file-upload

Initiate requestand receive filedownload

Response to file-upload

Distribute AM

Distribute file-download

23

• Clearing and Settlement functionMaintain DI, DI, ISI, ATI and STI

• EnquiryEnquire Settlement Account/Status

• Report DownloadData File Download (Start of Day), Overnight Report Distribution (Download), Report Download (Online)

and Report Profile Maintenance

• Asynchronous MessageBroadcast/Notification Messages

• File TransferSI, ISI, ATI and STI File Transfer

CCASS Functions supportedby PG

24

Q & A