HKEX proposes plan for multiple clearing banks for cash trades

INVESTORS may soon be allowed to enlist more than one clearing bank for their cash equities and options trades on the Hong Kong Exchanges & Clearing (HKEX).

The Securities and Futures Commission has “recently received a proposal from HKEX on accepting multiple general clearing participants for the cash and stock options markets and are currently reviewing it”, a spokesperson for the regulator said.

Hong Kong is pushing to revive its struggling stock market, which has slid for four years in row. It has unveiled more than a dozen measures including cutting the city’s stamp duty, deepening the trading link with China and attempting to get more international companies to list.

“HKEX is committed to continuously elevating the competitiveness and resilience of its markets, including further enhancements to its third-party clearing arrangements,” a spokesperson for the bourse said. “We will update the market should there be new developments.”

The proposal would allow investors to enlist more than one clearing bank for stocks and options. A change has been considered since the bourse first opened up multiple clearing for the futures market in 2022.

Allowing brokers to engage with more clearing banks is expected to encourage lower fees and better quality of services. Investors can also enjoy greater privacy to sign up with multiple banks, limiting insight.

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The number of clearing banks is limited in Hong Kong due to high capital requirements, which mandate HK$100 million (S$17 million) liquid capital and a minimum of HK$390 million Tier-1 capital. Only eight handle an averaged daily cash stock trade of HK$98.6 billion at HKEX. There are nine for futures clearing and 10 for stock options.

US and European banks split the clearing business at HKEX for cash equities, futures and options, led by Goldman Sachs Group, Merrill Lynch, HSBC Holdings, ABN AMRO Bank and other global peers.

Only two Chinese firms, Bocom International for stock options, and CES Commodities (HK) for futures, are among the 26 so-called general clearing participants.

A clearing bank stands between buyers and sellers to make sure a trade is honoured from the day of execution to whenever shares and money actually changes hands, usually one or two days after. BLOOMBERG