1 Benefits of a US Dollar Clearing System  Enhance Hong Kong’s financial infrastructure –help to develop the markets in US dollar denominated equities and debt securities in Hong Kong –attract US dollar denominated trades in the Region to settle in Hong Kong  Enhance settlement efficiency and reduce settlement risk –PvP link with Hong Kong dollar –DvP for US dollar denominated securities –US dollar paper cheque clearing facilities Annex

2 Contractual Framework HKMA HSBC HKICL Appoints HSBC to be the settlement institution for a franchise period of 5 years Appoints HKICL as its clearing agent during the franchise period

3 Settlement Structure HSBC PB Settlement Institution PB = Participating Bank IP = Indirect Participants IP

4 Clearing Facilities  US dollar RTGS - US dollar payment settled in real-time across the book of the settlement institution will be final and irrevocable.  US dollar cheque clearing - US dollar cheques settled on a next day and multilateral netting basis.  PvP settlement for Hong Kong dollar / US dollar foreign exchange transactions through linkages with the Hong Kong dollar clearing system.  DvP settlement for US dollar denominated debt securities and shares through linkages with respective clearing houses, e.g. CCASS and CMU.

5 Implementation Timetable  CHATS with overdraft facilities but without August 2000 CMUP interface  ECG clearing for CCASS itemsAugust 2000  Payment vs. PaymentSeptember 2000  Paper cheque clearingDecember 2000  CMUP interface December 2000