Originally published June 10, 2011.
Keywords: RMB equity, trading support facility, TSF, exchange participants
Further to our Legal Update entitled " The New RMB Equity Trading Support Facility" published on 12 May 2011, Hong Kong Exchanges and Clearing Limited (HKEx) issued updated Frequently Asked Questions (FAQ) on 30 May 2011 to reveal more details on the new facility. As explained in our previous Legal Update, the major purpose of implementing the RMB Equity Trading Support Facility (TSF) is to provide a back-up facility so as to allow investors who wish to buy shares denominated in Reminbi (RMB) in the secondary market with Hong Kong Dollar (HKD) if they do not have sufficient RMB or have difficulty in obtaining RMB from other sources. HKEx intends to launch the facility in the second half of 2011.
The major features of the TSF explained in the FAQ are briefly summarised as follows:
- The TSF is primarily targeted to support the trading of RMB-denominated shares on the secondary market operated by The Stock Exchange of Hong Kong Limited (SEHK). The using of the TSF is not a precondition for launching an initial public offering or a listing of RMB-denominated products on SEHK. Having said that, HKEx is currently working closely with other regulators and market participants for the purpose of developing various arrangements to facilitate the initial public offering of RMB-denominated products.
- It is not compulsory for Exchange Participants (EPs) and other market participants to use the TSF. They can obtain RMB or provide RMB to their clients through other legal channels or arrangements.
- EPs and other market participants who intend to use the TSF are required to comply with certain specified registration criteria (TSF Eligible Participants).
The RMB 20,000 Limit
- The daily exchange limit of RMB 20,000 (a requirement under the Clearing Agreement which banks have entered into with Bank of China (Hong Kong), the Renminbi Clearing Bank in Hong Kong) is not applicable to the TSF nor EPs using the TSF foreign exchange (FX) services. The FX transactions handled via the TSF will be entered into between Hong Kong Securities Clearing Company Limited (HKSCC) and the relevant EPs or other relevant market participants. HKSCC (as the operator of the TSF) is not a party to the Clearing Agreement and as far as HKSCC is aware, no EP is a party to the Clearing Agreement.
- The TSF will only be offering two categories of FX services: conversion from HKD to RMB and from RMB to HKD. Where an EP (who is a TSF Eligible Participant) intends to use the TSF to process a share transaction on the AMS/3 (The Third Generation Automatic Order Matching and Execution System), the EP will effectively be entering into two separate transactions: (a) the transaction to buy or sell the relevant shares; and (b) the FX transaction to buy or sell RMB (as the case may be). In this connection, an EP is required to input orders to buy or sell shares into the AMS/3 in accordance with specified procedures.
- The TSF model will implement the "HKD in and HKD out" principle. Accordingly, only HKD will be (a) accepted for the purchase of RMB-denominated shares (via FX conversion from HKD to RMB) and (b) used to settle sale proceeds for the sale of RMB-denominated shares (via FX conversion from RMB to HKD). In this connection, RMB-denominated shares purchased via the use of the TSF will automatically be transferred from the clearing account of a participant (CCASS Participant) of the Central Clearing and Settlement System (CCASS) into a segregated stock account specifically designated as "TSF account" in CCASS. Shares transferred into the TSF account are regarded as having "ear-marked". These ear-marked shares can be transferred to the "TSF account" of CCASS Participants who are TSF Eligible Participants.
- Additional reports containing relevant information such as final conversion rates and money obligations for settlement of TSF FX trades etc. will be provided to TSF Eligible Participants in order to assist them to manage or track TSF FX transactions and ear-marked shares.
Copies of the FAQ can be downloaded via the link below:
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