Real Time Gross Settlement System

The successful launch, in December 1996, of the Real Time Gross Settlements (RTGS) system, one of the most advanced in Asia, provides Hong Kong with a modern, efficient and robust interbank payment system, where settlement risk has been reduced to an absolute minimum.

Moreover, with the implementation of the RTGS system, a real time Delivery versus Payment (DvP) capability is achieved for all debt securities transactions cleared and settled with the Central Moneymarkets Unit (CMU) of the HKMA. In addition, in May 1998 the Hong Kong Monetary Authority (HKMA) developed and implemented DvP facilities for share transactions, having built an interface between the RTGS system and the clearing and settlement system for shares operated by Hong Kong Clearing. The RTGS system has also provided the building block for Payment versus Payment (PvP) for foreign-exchange transactions upon establishment of linkages of payment systems between Hong Kong and other economies.

The HKMA has also reached agreement in principle with the People's Bank of China (PBOC) to establish a PvP link between the Hong Kong's Hong Kong dollar payment system and China's National Automated Payment System (CNAPS) when CNAPS goes live. A PvP link will reduce the settlement risk in foreign exchange transactions arising from the difference in timing in the final settlement of the two currencies involved.

In developing Hong Kong's market infrastructure, a Joint Clearing Facility between Hong Kong and the Shenzhen Branch of the PBOC was established in January 1998 to speed up the processing of Hong Kong dollar cheques issued by banks in Hong Kong and presented in Shenzhen.

Operation of the RTGS system

The core features of the RTGS system are as follows:

• compliance with international standards;
• final settlement across the books of the HKMA;
• a single tier system in which all licensed banks maintain settlement accounts with the HKMA;
• while no daylight overdraft is allowed, banks can obtain intraday liquidity through intraday repurchase (repo) with the HKMA, using mainly government paper, e.g. Exchange Fund Bills and Notes; and
• allowance for domestic and international linkages to facilitate real time DvP and real time PvP.
  
  When a payment has been settled across the books of the HKMA, it can be regarded as final and irrevocable. The Settlement Accounts maintained by the banks with the HKMA will not normally be allowed to go into overdraft. Hence, banks without sufficient credit balance or securities for intraday repo to effect outgoing payment instructions will have their instructions queued in the system.

Under an RTGS system, it is necessary to address how liquidity can be provided to the banks in order to reduce the chance of gridlock being developed since every payment has to be settled on an individual and gross basis. Banks can obtain interest-free intraday liquidity through intraday repo using Exchange Fund Bills/Notes. Intraday repo that fails to be reversed before the close of the business day will be carried into overnight borrowing through the Discount Window.