HONG - HKU Libraries - The University of Hong Kong

Fact Sheet 4
HONG KONG MONETARY AUTHORITY
the CMU has been linked to Euroclear and Cedel. This helps promote Hong Kong dollar debt securities to
overseas investors. In January 1996, the CMU Service was further extended to cover non-Hong Kong dollar
debt securities.
The CMU handles debt instruments which are either immobilised or dematerialised, and transfer of title is
effected in computer book entry form. At the end of June 1999, 822 private debt issues, with a total
nominal value of HK$226.6 billion (US$29.1 billion) were lodged with the CMU, an increase of 17.4%
compared with the end of 1997.
In December 1996, a seamless interface between the CMU and the newly launched Real Time Gross
Settlement (RTGS) interbank payment system was established. The CMU system now provides real time
and end-of-day Delivery versus Payment (DvP) services.
In April 1997, an agreement was reached between the HKMA and the Reserve Bank of Australia (RBA) for
the CMU of the HKMA to join the RBA's Reserve Bank Information and Transfer System (RITS) which is
the central clearing and settlement system for Australian government paper.
Subsequent to the linkage with Australia, the CMU set up a securities link with the Austraclear New
Zealand System, a clearing system operated by the Reserve Bank of New Zealand (RBNZ), in April 1998.
The bilateral linkage was established on a reciprocal basis. Both the HKMA and the RBNZ have become
members of each other's clearing system. The bilateral linkages between Hong Kong and Australia and New
Zealand will help to broaden the investor base of the debt markets in these economies by facilitating crossborder
trading and holding of securities.
The third bilateral securities link in the region, with South Korea, commenced operation on 8 September
1999.
Granting of profits tax
exemption/concession
for qualifying debt
securities
As a measure to promote the development of a high quality debt market, Exchange Fund Bills and Notes
have been exempted from profits tax. Since 1992, the SAR Government has also granted the exemption
of profits tax on Hong Kong dollar debt securities issued by the multilateral agencies with top credit
ratings. To date, ten multilateral agencies have been granted tax-exempt status. At the end of June 1999,
the outstanding amount of Hong Kong dollar debt securities issued by the multilateral agencies was
HK$68.9 billion.
In addition, since May 1996, interest income and trading profits derived from eligible debt securities can
enjoy a concessionary tax rate equal to 50% of the standard profits tax rate. All debt instruments, regardless
of their currency denomination, will qualify for the tax concession if they fulfill the eligibility criteria. There
are two such types of eligible securities:
• debt instruments issued by the MTRC, KCRC, AA and HKMC, lodged with and cleared through
the CMU, with a minimum denomination of HK$50,000 or its equivalent in a foreign currency,
with an original maturity of not less than five years, and issued to the public in Hong Kong; and
• debt instruments lodged with and cleared through the CMU, with an investment grade rating
specified by the HKMA, with a minimum denomination of HK$50,000 or its equivalent in a
foreign currency, with an original maturity of not less than five years, and issued to the public in
Hong Kong.