Settlement Agent

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Should Participant apply for Buy-in exemption if an early buy-in order has been arranged for the current day outstanding short position?

Yes. Participant should apply Buy-in exemption via Client Connect as usual. Participant should select Contingency ground under BASIS OF APPLICATION and fill in the REMARK BY PARTICIPANT to explain that an early buy-in order has placed on YYYY-MM-DD to settle the outstanding position.

Should Participant apply for Buy-in exemption if the current day outstanding short position is due to the fact that Participant’s available shares are being used to settle old short position during Batch Settlement Run whereby a buy-in order for settling the old position had been arranged?

Yes, this is a double count scenario. Participant should apply Buy-in exemption via Client Connect as usual. Participant should select Contingency ground under BASIS OF APPLICATION and fill in the REMARK BY PARTICIPANT to explain that the outstanding position quantity is a double count of an old position dated YYYY-MM-DD. Participants are also suggest to settle the current day short position by delivery instruction so as to avoid the shares are being used to settle old short position during batch settlement run.

What is a Settlement Agent (SA)? What is the difference between Settlement Agent and Third Party Clearing (TPC)?

A Settlement Agent is a service provider appointed by a CCASS Participant except Investor Participant (“non-IP Participant”) to access CCASS and conduct settlement and other activities in CCASS on behalf of the Participant without changing the Participant’s principal obligations vis-à-vis HKSCC. The TPC model offers an added option for Exchange Participant who trades on the Stock Exchange of Hong Kong (SEHK) to outsource its clearing functions to General Clearing Participant(s) who provides clearing services to Exchange Participants. Under TPC, an Exchange Participant has NO clearing participantship in CCASS and is referenced as a Non-Clearing Participant (NCP). An Exchange Participant which is an (i) NCP or (ii) a Clearing Participant which is not a China Connect Clearing Participant and which has entered into a Clearing Agreement with a General Clearing Participant for the clearing of its China Connect Securities Trades is referenced as a Non-China Connect Clearing Participant (NCCCP).

A table summarizing the key features of the SA and TPC models is shown below:

Descriptions	SA	TPC
1. Key concept	Allow Exchange Participant to outsource its CCASS operations (administrative functions only) to a Settlement Agent.	Allow Exchange Participant to outsource its CCASS clearing and settlement obligations to designated GCP(s).
2. Role of the service provider	SA is a CCASS account operator who conducts settlement and other activities in CCASS on behalf of the Participant.	GCP takes up the Exchange Trades and/or China Connect Securities Trades executed by its NCP/ NCCCPs and conduct clearing and settlement with HKSCC as principal in GCP’s own CCASS account.
3. Status of the service provider	SA does not need to be a CCASS Participant itself. However, it needs to demonstrate that it has adequate clearing experience and capability.	GCP is a CCASS Clearing Participant who needs to be formally admitted by HKSCC before clearing trades for other Exchange Participants. GCP must be a China Connect Clearing Participant in order to provide clearing and settlement services in respect of China Connect Securities Trades to NCP/ NCCCPs.
4. Participantship	Exchange Participant must be a DCP. SA is not itself a type of CCASS Participant.	For the case of an NCP, the Exchange Participant does not need to be a Clearing Participant. An Exchange Participant who is a Clearing Participant can choose to become an NCCCP and appoint a GCP for clearing of its China Connect Securities Trades. GCP does not need to become an Exchange Participant.

For more details on TPC, please visit the TPC section:http://www.hkex.com.hk/Services/Clearing/Securities/Getting-Started/Third-Party-Clearing-by-HKSCC-General-Clearing-Participants?sc_lang=en.

What factors should a non-IP Participant consider when appointing a Settlement Agent?

The appointment of a Settlement Agent by a non-IP Participant can be regarded as an outsourcing arrangement between the two parties concerned. Non-IP Participants should understand the various implications and obligations to HKSCC related to outsourcing the CCASS function to a third party. The key implications including the control over the outsourced CCASS operations, operational and systemic risks and the associated insurance coverage, as well as the local legal and regulatory requirements if the Settlement Agent is located in a foreign jurisdiction, should be considered and properly addressed beforehand. Non-IP Participants should refer to the “Principles on Outsourcing” issued by the International Organization of Securities Commissions “IOSCO” which can be downloaded from IOSCO’s website at http://www.iosco.org/ (Related link of the document:https://www.iosco.org/library/pubdocs/pdf/IOSCOPD687.pdf).

How to Apply?

A non-IP Participant who is interested in the appointment of a Settlement Agent to carry out CCASS operations on its behalf is required to apply to HKSCC (Related explanatory note and application form can be downloaded at http://www.hkex.com.hk/Services/Clearing/Securities/Getting-Started/Settlement-Agent-and-Access-to-CCASS-from-a-Foreign-Jurisdiction?sc_lang=en). Alternatively, interested non-IP Participant can also make a request to the Clearing Administration & Services, Cash & Derivatives Clearing Operations by mail: 30/F, One Exchange Square, 8 Connaught Place, Central, Hong Kong or by fax: 2590-7000 to obtain the Application Package.

Must a Settlement Agent be a CCASS Participant?

A Settlement Agent may be a non CCASS Participant as long as all the conditions and requirements in relation to appointing a Settlement Agent are met. When considering such application, the Settlement Agent would be assessed as if it were applying to become a CCASS Participant.

Can a non-IP Participant appoints a Settlement Agent, whose operation is located in a foreign jurisdiction?

In general, CCASS can be operated from a foreign jurisdiction, for more details, please refer to CCASS/3 – Frequently Asked Questions at http://www.hkex.com.hk/Global/Exchange/FAQ/Securities-Market/Clearing-and-Settlement/CCASS-3?sc_lang=en.

A non-IP Participant may, subject to HKSCC’s approval, appoint a Settlement Agent who is located in a foreign jurisdiction. Pursuant to CCASS Rule 3904, the non-IP Participant needs to provide a legal opinion confirming that such arrangement will not:

a. subject HKSCC, the Exchange or a recognized exchange controller to any legal, regulatory, reporting, registration or other requirements of the foreign jurisdiction;

b. deem HKSCC, the Exchange or a recognized exchange controller to be carrying on any business in that jurisdiction;

c. have any tax implications on HKSCC , the Exchange or a recognized exchange controller; and

d. affect the right of inspection by HKSCC to books, records or systems relating to CCASS or transactions conducted through CCASS in that jurisdiction.

The legal opinion shall be issued in such form as set out in Rule 3904 of the General Rules of CCASS. The non-IP Participant shall ensure that it complies with all applicable laws, regulations and requirements of the jurisdiction where its and its Settlement Agent’s CCASS Terminals, office premises or operations are located.

What other conditions should a non-IP Participant fulfill in order to obtain approval from HKSCC?

Non-IP Participants should notify HKSCC of any change of particulars arising from the appointment of Settlement Agent according to the existing procedures.

What are the key aspects that HKSCC would consider when assessing the Settlement Agent application?

When assessing the Settlement Agent application, HKSCC would consider key aspects such as:

· Whether the proposed SA is an existing CCASS participant and if it has a good track record;

· Whether the proposed SA has specified a designated person with adequate qualification to be responsible for ensuring compliance with the CCASS Rules & OP;

· Whether the proposed SA has an adequate operational risk control plan in place.

Is there any contractual relationship between the Settlement Agent and HKSCC?

As mentioned in Q. 1 above, despite the appointment of a Settlement Agent, the Participant’s principal obligation vis-à-vis HKSCC remains unchanged. As such, there is no direct relationship between HKSCC and the Settlement Agent.

What should be included in the service contract between the non-IP Participant and the Settlement Agent?

The business drivers, scope and service requirements of each outsourcing arrangement differ. The service contract should be a commercial agreement between the non-IP Participant and the Settlement Agent.

Can a non-IP Participant appoint more than one Settlement Agent?

No. A non-IP Participant is allowed to appoint one Settlement Agent only to operate CCASS on its behalf.

What if a non-IP Participant wants to switch Settlement Agent?

The non-IP Participant is required to submit a cancellation form and make a new application to HKSCC following the standard procedures. The cancellation form can be downloaded at http://www.hkex.com.hk/-/media/HKEX-Market/Services/Clearing/Securities/Getting-Started/Settlement-Agent-and-Access-to-CCASS-from-a-Foreign-Jurisdiction/cancel_form.pdf?la=en). Alternatively, participant can also make a request to the Clearing Administration & Services, Cash & Derivatives Clearing Operations by mail: 30/F, One Exchange Square, 8 Connaught Place, Central, Hong Kong or by fax: 2590-7000 to obtain the cancellation form.

Does a non-IP Participant need to appoint Delegated Administrators and end users after appointing a Settlement Agent?

Yes. The appointment of C3T Delegated Administrators (at least one maker and one checker to maintain user profiles of its end users) and end users (to perform various CCASS functions via C3T) should be authorized by the non-IP Participant.

Can non-IP Participants access CCASS Terminal installed overseas by 2FA?

Non-IP Participants can use their Delegated Administrator and end user’s account to access CCASS Terminal installed overseas by 2FA. Delegated Administrators can create, change, and delete user profile of end users.

However, Participant should notify HKEX for user profile maintenance of Delegated Administrators by submitting the eService – DA 3 “CCASS/ CCMS Delegated Administrator Application/ Maintenance Form” in Client Connect through HKEX Access Management Portal (https://connect.hkex.com.hk/).

For technical details related to installing CCASS Terminal overseas, please refer to CCASS – Frequently Asked Questions at https://www.hkex.com.hk/Global/Exchange/FAQ/Securities-Market/Clearing-and-Settlement/CCASS?sc_lang=en

Can an Exchange Participant who has appointed a SA become an Non Clearing Participant (NCP)/ Non-China Connect Clearing Participant (NCCCP)?

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.