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Fact Sheet 5
HONG KONG MONETARY AUTHORITY
THE REAL TIME GROSS SETTLEMENT SYSTEM
Hong Kong's interbank payment system entered a new era on 9 December 1996 with the launch of the Real
Time Gross Settlement (RTGS) system by the Hong Kong Monetary Authority (HKMA) and the Hong
Kong Association of Banks (HKAB). The new system is one of the HKMA's major initiatives to enhance the
robustness of the financial infrastructure and the competitiveness of Hong Kong as an international
financial centre. It is one of the most advanced interbank payment systems in the Asia Pacific region.
RTGS - a simple and
direct system
Prior to the establishment of the RTGS system, the Hongkong and Shanghai Banking Corporation Ltd
(HSBC) was the Management Bank responsible for all interbank payment and settlement arrangements.
Some 171 licensed banks needed to go through 10 designated banks, called the Settlement Banks, which
would in turn clear payments with the HSBC. Under the new RTGS system, which is simple, robust and in
full compliance with international standards, all licensed banks in Hong Kong are required to open
settlement accounts directly with the HKMA and have direct access to the system. A new company, Hong
Kong Interbank Clearing Ltd, jointly owned by the HKMA and HKAB, was set up to replace the HSBC as
the operator of the clearing house to settle all interbank payments (Chart).
Automated intraday
repurchase (repo)
arrangement
While no daylight overdraft is allowed, banks can obtain intraday liquidity through intraday repo
arrangement with the HKMA, using mainly government paper, i.e. Exchange Fund Bills and Notes. The
intraday repo transactions are fully automated. When a bank does not have sufficient balance in its account
to effect an outgoing payment but has sufficient eligible securities in its intraday repo account, the system
will automatically trigger an intraday repo transaction to generate the required amount of credit balance to
cover the shortfall. A bank with excess liquidity in its settlement account may reverse the repo transaction
any time.
The HKMA's functions
Under the RTGS system, the HKMA performs the following roles:
• acting as the settlement institution for all licensed banks in Hong Kong;
• operating the Central Moneymarkets Unit system, which is a computerised clearing and settlement
facility for debt securities;
• providing intraday liquidity through intraday repos to prevent payment gridlocks; and
• overseeing the operation and development of Hong Kong's interbank payment system.
Measures to improve
payment flows
To address concerns among some banks about other banks holding on to liquidity until late in the
afternoon and the risk of technical default of time-critical bulk clearing payments, the HKMA has
introduced several liquidity management measures under the RTGS system. These include:
• a guideline implemented in December 1996 by the HKMA to encourage all banks to make
payments in a timely and orderly manner throughout the day. A bank is required to release and
settle 35% by noon and 65% by 2:30 p.m. the value of its total daily Clearing House Automated
Transfer System payments; and