Hong Kong Monetary Authority chief executive Joseph Yam says the launch of the Euro Clearing System further strengthens Hong Kong's position as an international financial centre

This follows the launch on April 28 of the Euro Clearing System commissioned by the Hong Kong Monetary Authority (HKMA), and is another major move forward in the development of Hong Kong as a regional clearing centre for multi-currency funds transfer.

In welcoming the launch of the system, HKMA chief executive Joseph Yam said: "With an efficient and reliable Euro Clearing System in Asia, the Herstatt risk (the foreign exchange settlement risk arising from time zone differences) associated currently with the settlement of Asia's euro denominated transactions in European time, can be eliminated.

"The launch of the Euro Clearing System marks another milestone in developing Hong Kong as a regional clearing centre for multi-currency funds transfer and will further strengthen Hong Kong's position as an international financial centre."

Standard Chartered Bank was last year appointed the settlement institution for the system, which will handle cross trades in euro/US dollar and euro/Hong Kong dollar.

Fast, convenient service

Director of Standard Chartered Bank Peter Wong said: "Standard Chartered Bank is delighted to have been appointed as the settlement institution for Euro Clearing in Hong Kong. We look forward to providing financial institutions in Hong Kong with a convenient and efficient euro clearing service."

Standard Chartered has appointed Hong Kong Interbank Clearing Ltd, the current operator of the Hong Kong dollar and US dollar payment systems, to develop and operate the euro system.

Hong Kong already has an active US dollar clearing system, established in 2000, where turnover runs between US$5 billion and $8 billion per day, although local bankers believe it will take some time before the euro system challenges the upper level of trade.

However, in a strong first day's business the system settled trades worth six billion euros (US$6.5 billion) as buyers scrambled for the currency as it continued this year's sharp increase against the greenback.

The Iraq war has boosted demand for the euro as a hedge against a weakening US dollar, while buyers are expected to continue to build up their positions as the outlook for the US economy remains uncertain.

Around 20 banks have joined the settlement system, and big users are expected to be Asian companies trading with Europe as well as financial institutions and bond dealers.

Real-time efficiencies

The HKMA's decision to launch the Euro Clearing was taken last year, and followed discussions with bankers who said there was need for a parallel to the US dollar settlement system.

One of the Euro Clearing System's principal benefits is that traders no longer have to wait up to eight hours from European foreign exchange markets to open before they can settle deals. These delays open up the possibility of counter party risk failure, pointed out one banker.

The key functions of the settlement system include an interbank, real-time gross settlement system, a payment versus payment settlement for transactions involving euros against US dollars or Hong Kong dollars.
It will also enable delivery versus payment settlement for euro-denominated debt securities.

Mr Yam has already indicated that a cheque settlement system would be added on if there was demand.

Related link:
HKMA www.info.gov.hk/hkma/