HKMA unveils new phase of cross-border settlement platform

The Hong Kong Monetary Authority (HKMA), in collaboration with the Bank Negara Malaysia and Euroclear, will add a new collateral management service to its existing cross-border investment and settlement pilot platform on June 25.

The pilot platform, launched in March, is designed to improve the efficiency of cross-border debt securities settlement and strengthen the capacity for debt securities issuance in Asia. The new collateral management service is viewed as the next step towards achieving this goal as it will enable larger volumes of tripartite repo transactions by including domestic participants that currently have limited access to the market.

Asian repo markets are "underdeveloped", representing just 1.7% of GDP when Japan is excluded compared with 60–70% in Europe and the US, the HKMA said. "The growth potential of repo markets in Asia is very significant," it added.

The collateral management service will handle "cross-system, cross-currency, cross-timezone" repo transactions, the HKMA said. It anticipates the service will cover Hong Kong dollars, US dollars, renminbi and euro transactions by the first half of 2013. Participants will be able to settle repo transactions in other currencies using correspondent banks.

Organisers believe there is widespread interest in the services, which are available to central banks and central securities depositories in Asia. "Dialogue has started with 30 institutions that are considering using the platform," said a spokesman from Euroclear, which is providing technical support to the project.

The spokesman added the title "pilot platform" is something of a misnomer. "It is not a pilot run, but rather a progressive series of enhancements ahead of the migration to the common platform," he said. "To maintain flexibility there is no definite timeline for the full implementation."

The central banks of Malaysia and Hong Kong have co-operated on similar projects in the past. In 2007 they launched a cross-border delivery-versus-payment link to eliminate the settlement risk of US dollar-denominated bonds issued and traded in Malaysia. In 2009, the two central banks agreed to promote Islamic financial links between the two countries by co-operating on the development of legal and regulatory frameworks.