Third Party Clearing

Broker Participants of CCASS are automatically renamed as Direct Clearing Participant (DCP)[3]. DCPs are responsible for clearing and settling its own Exchange Trades and if applicable, China Connect Securities Trades, and enjoy the same rights and subject to the same obligations with CCASS as if they were Broker Participants.  Besides DCP, there is another type of clearing participantship, namely General Clearing Participant (GCP).  GCPs are able to clear and settle their own trades, as well as the trades of those Exchange Participants who have elected to become a Non-Clearing Participant (NCP) or Non-China Connect Clearing Participant (NCCCP).

[3] GCP and DCP are collectively referred to as CCASS Clearing Participants.

An Exchange Participant can choose to become an NCP even if it has already appointed a SA. As an NCP is no longer a CCASS Participant, the SA appointment needs to be terminated as well. The Exchange Participant needs to terminate its CCASS Participantship, cancels the appointment of its SA and notifies SEHK of its appointment of any GCP. HKSCC then terminates the Exchange Participant’s CCASS Participantship, cancels its CCASS account and establishes clearing relationship between the Exchange Participant and its newly appointed GCP according to the specified effective date.

For an Exchange Participant who has already appointed a SA for its China Connect Securities Trades, and if subsequently the Exchange Participant wishes to become an NCCCP and appoint a GCP for the clearing of its China Connect Securities Trades, the Exchange Participant’s SA appointment on the China Connect Securities Trades needs to be terminated.

For NCP/ NCCCP, all its Exchange Trades[4] and/or China Connect Securities Trades[5] must be cleared and settled by its GCP. For those trades executed on the SEHK involving securities that are not CCASS Eligible Securities, Exchange Participant can arrange to settle by itself or through its GCP in accordance with the Rules of the Exchange. This should preferably be specified in the Clearing Agreement.

[4] Exchange Trade is defined in the Rules of the Exchange as a trade in a CCASS Eligible Security (other than a China Connect Security) either reported to the Exchange by an Exchange Participant or effected on the Exchange.

[5] China Connect Securities Trades is defined in the Rules of the Exchange as a trade in China Connect Securities (including Special China Connect Securities) executed on a China Connect Market through the use of the China Connect Service.

Yes, an Exchange Participant can appoint different GCPs to take-up its clearing and settlement obligations in CCASS for its Exchange Trades and China Connect Securities Trade.

The NCP being an Exchange Participant is liable for stamp duty derived from Exchange Trades and is still required to pay the deposit of stamp duty as stipulated in Chapter 13 of the Rules of the Exchange. Nevertheless it can outsource its stamp duty related functions to its GCP (such as producing contract notes, collection of stamp duty from NCP’s clients and payment of stamp duty to SEHK) on commercial basis. In such case, the NCP must ensure that the GCP is in full compliance with the Operation Procedures for Collection of Stamp Duty as specified in the Participant Circular EBU/TMOC/RPS/056/03 of SEHK.

For China Connect Securities Trades, HKSCC will collect stamp duty payable from the GCP’s designated bank accounts on daily basis. The NCP/ NCCCP has to establish procedures with its GCP in collecting the stamp duty from NCP/ NCCCP’s clients.

The clearing services provided by GCP are basically determined between GCP and NCP/ NCCCP based on commercial terms. While GCP and NCP/ NCCCP are required by HKSCC to enter into a valid, binding and effective Clearing Agreement, HKSCC is not a party to it.  Under the CCASS Rules, GCP is obligated to ensure that the Clearing Agreement must facilitate the performance of, and be consistent with the GCP’s obligations under the CCASS Rules and Operational Procedures.

Exchange Participant can appoint any clearing service provider to act as its GCP as long as the service provider has been admitted by HKSCC as a GCP. The NCP/ NCCCP and the GCP should jointly submit the Form 11 - Notification of Execution of Clearing Agreement and Change of Clearing Relationship to SEHK.

For the case of more than one GCP is appointed, the NCP is required to submit the Form 11 for each of its GCP(s). For an Exchange Participant who has appointed a GCP for the clearing of its Exchange Trades and China Connect Securities Trades and wishes to appoint different GCPs for the Exchange Trades and China Connect Securities Trades, the Exchange Participant and the current GCP responsible for the clearing of both Exchange Trades and China Connect Securities Trades is required to jointly submit Form 11 to SEHK to confirm the change of clearing relationship.

If an Exchange Participant who is a Clearing Participant chooses to appoint a GCP for clearing of its China Connect Securities Trades, it will no longer be allowed to register as a China Connect Clearing Participant (CCCP) with HKSCC and cannot clear any China Connect Securities Trades executed by itself or any other NCP(s) or NCCCP(s). The Exchange Participant is required to terminate its registration as a CCCP (if it is currently registered as a CCCP) and submit Form 11 to SEHK in respect of the clearing appointment. The Exchange Participant and/or any of its existing NCP(s)/ NCCCP(s) in respect of China Connect Securities Trades is required to submit Form 11 or Form 12 (as the case may be) to SEHK to confirm the change of clearing relationship or the termination of clearing agreement.

In any of the above cases, the GCP shall, at the request of HKSCC, supply it with a certified true copy of the executed Clearing Agreement. 

An Exchange Participant who is already a CCASS Participant but wants to become an NCP or NCCCP needs to terminate its CCASS Participantship or registration of a China Connect Clearing Participant (as the case may be) by giving 1 calendar month notice in advance in accordance with the HKSCC Rules.  A summary of application documents required for such change are available on HKEX website: http://www.hkex.com.hk/Services/Clearing/Securities/Getting-Started/Third-Party-Clearing-by-HKSCC-General-Clearing-Participants?sc_lang=en.

For an Exchange Participant who has appointed more than one GCP for clearing its Exchange Trades and Clearing Agency Transactions (if applicable), besides the submission of Form 11, both Exchange Participant and the GCPs are required to jointly submit the Form 23 to SEHK for designation of trade settlement between the GCPs.

NCP/ NCCCP can terminate its appointment of a GCP by terminating the Clearing Agreement according to the terms specified therein. An NCP/ NCCCP must notify SEHK by submitting the Form 12 – Notification of Termination of Clearing Agreement as soon as it has reached such decision. NCP/ NCCCP needs to notify the other party to the Clearing Agreement and the Intermediaries Supervision Department of SFC of its intention to terminate the Clearing Agreement. SEHK shall effect the termination as soon as possible.

If the termination of GCP appointment only covers Exchange Trades or China Connect Securities Trades while that GCP will continue being responsible for clearing and settlement of the trades that have valid, binding and effective Clearing Agreement, NCP and that GCP is required to jointly submit Form 11 to SEHK to confirm the change of clearing relationship.

For an Exchange Participant who has appointed more than one GCP for the clearing of its Exchange Trades where the Clearing Agreement with one of the GCPs is no longer being valid, both Exchange Participant and the new GCPs are required to jointly submit the Form 11 (if New GCP appointed) and/or Form 23 to SEHK for designation of trade settlement among the GCPs.

Since an NCP/ NCCCP has outsourced its CCASS clearing and settlement obligations to its GCP, it is not allowed to trade on the SEHK unless it has a valid, binding and effective Clearing Agreement with its GCP(s) for the clearing of its Exchange Trades and (if applicable) China Connect Securities Trades. For the avoidance of doubt, when an NCP has appointed two separate GCPs, it will not be allowed to conduct trading in China Connect Securities if the NCP no longer has a valid, binding and effective Clearing Agreement with the GCP for the clearing of its Exchange Trades even if the other Clearing Agreement for the clearing of its China Connect Securities Trades remains valid, binding and effective.  As such, an NCP is advised to secure a new Clearing Agreement with another GCP to take up its CCASS clearing and settlement obligations or to become a CCASS DCP and (if it intends to trade China Connect Securities) register as a China Connect Clearing Participant before terminating the existing GCP.

No, NCP/ NCCCP are generally required to comply with the FRR as stipulated in the Securities and Futures Ordinance. Further enquiry should be addressed to the SFC.

The NCP/ NCCCP, being an Exchange Participant is still primarily responsible for complying with the regulatory requirements imposed on an Exchange Participant, although, it may on commercial arrangement request its GCP to carry out on its behalf some duties (such as filing Financial Return to the SFC) in relation to the activities which it has outsourced to the GCP. In this case, this should be agreed between the two parties upfront and include in the Clearing Agreement where appropriate.

GCP is responsible to develop its own risk management capability in monitoring its exposure to NCP/ NCCCP, which may involve providing appropriate trading and back office systems to intercept NCP/ NCCCP’s trades prior to or immediately after trade orders have been executed on SEHK. To support GCP’s clearing and settlement operations, CCASS provides trade details and CNS positions at GCP’s underlying NCP/ NCCCP level, such as:

• Provisional Clearing Statement
• Final Clearing Statement
• Intra-day Trade File

While GCPs can retrieve Marginable Position Report (RMAMP01) and MTM and Margin Requirement Report (RMAMR01/03) via RAP for an estimation of its own and NCP’s risk obligation, GCPs can also conduct margin and stress testing simulation, GCPs should note that that such simulation results are for reference only.  GCPs should always refer to CCASS reports - Posting / Collateralisation Result Report (CCMPY01/03) for the payment obligation after collateralisation.

For details, GCP should refer to the User Guides available via Client Connect (https://connect.hkex.com.hk).

A GCP can terminate its service provided to an NCP/ NCCCP by terminating its Clearing Agreement according to the terms specified therein. A GCP must notify SEHK by submitting Form 12 – Notification of Termination of Clearing Agreement as soon as it has made such decision. GCP should also notify the other party to the Clearing Agreement and the Intermediaries Supervision Department of SFC of its intention to terminate the Clearing Agreement.

In the situation that no Broker ID of Exchange Trades will be designated to a GCP for clearing on behalf of an NCP, the NCP or the GCP should also submit the Form 12 - Notification of Termination of Clearing Agreement to SEHK.

A GCP, who provides clearing services to an NCP for both Exchange Trades and China Connect Securities Trades may terminate its services to an NCP for either Exchange Trades or China Connect Securities Trades according to the terms of the relevant Clearing Agreement. The GCP must notify SEHK by submitting Form 11 to confirm the change of clearing relationship.

Unlike derivatives markets where participants can choose to give up their trades either on a trade/position basis (in this case, the participant is still a Clearing Participant of the relevant clearing house) or “all-or-nothing” basis (where the participant concerned becomes an NCP), the trades executed by an Exchange Participant  in the cash market are cleared by its designated GCP(s) on an “all-or-nothing” basis for the appointed market(s) (i.e. Hong Kong and/or China Connect Markets) in CCASS if the Exchange Participant opts for TPC and becomes NCP/ NCCCP.