Originally published 12 May 2011

Keywords: RMB Equity Trading Support Facility, TSF, RMB-denominated shares

Quick Read

Hong Kong Exchanges and Clearing Limited (HKEx) intends to launch the new RMB Equity Trading Support Facility (TSF) as early as in the second half of 2011. Broadly speaking, TSF allows investors to exchange Hong Kong dollars (HKD) for Renminbi (RMB) in order to purchase RMB-denominated shares in the secondary market. Upon the selling of the RMB-denominated shares, investors can get their money back in HKD. The major purpose of launching the TSF is to ensure sufficient and reliable RMB liquidity in Hong Kong so as to facilitate the growth of the RMB-denominated share market which is important for the further development of the offshore RMB market in Hong Kong.

Operation of the TSF

The TSF will manage the RMB/HKD fund flow on a back-to-back basis between its partner banks and participating brokers. In this connection, RMB will be sourced by the TSF from one or more banks in Hong Kong and the TSF will provide RMB through its participating brokers to investors who wish to buy RMB-denominated shares in the secondary market. RMB obtained from the TSF will be used to settle transactions in RMB-denominated shares through Hong Kong Securities Clearing Company Limited – the operator of the Central Clearing and Settlement System (CCASS). The exchange rate used by the TSF will be determined on a commercial basis by the TSF partner banks.

The users of the TSF will pay HKD for RMB. Upon the selling of the RMB-denominated shares they bought with RMB from the TSF, they are required to "return" the RMB to the TSF for the equivalent amount of HKD. This so-called Hong Kong Dollar In, Hong Kong Dollar Out (or "HKD In, HKD Out") mechanism, which all procedures will be conducted within CCASS, will ensure that the TSF is sustainable without access to an unlimited supply of RMB.

Major Features of the TSF

In summary, the major features of the TSF are described as follows:

  • It will be a back-up facility.
  • RMB available through the TSF will be recyclable.
  • It will be open and optional to all investors, brokers and Stock Exchange Participants.
  • RMB from the TSF will be a committed source of funding and priced at commercial rate.

Way Forward

According to the HKEx, it is intended that the preparation work for the TSF will be completed by September this year. However, no launching date of the product is announced so far. In this regard, we will issue further update(s) on the new development of the TSF as and when appropriate

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