Hong Kong's new compulsory stock borrowing programme
| Pages | 57-66 |
| DOI | https://doi.org/10.1108/eb025030 |
| Date | 01 January 2000 |
| Published date | 01 January 2000 |
| Author | Lynn Bai |
| Subject Matter | Accounting & finance |
Journal of Financial Regulation and Compliance Volume 8 Number 1
Hong Kong's new compulsory stock
borrowing programme
Lynn
Bai
Received: 25th May, 1999
Supervision of Markets Division, Hong Kong Securities and Futures Division, Edinburgh Tower,
The Landmark, 15 Queens Road, Hong Kong; tel: +852 2842 7788; fax: +852 2856 2844,
e-mail: lynnbai@hksfc.org.hk
Lynn Bai is a senior manager of the Hong
Kong Securities & Futures Commission.
This paper is an expansion of a working
paper that the author prepared during the
course of her employment. The working
paper received valuable comments from
the author's colleagues at the Commis-
sion, particularly Mr Jerry
Greiner,
who is
a Senior Director of the Supervision of
Markets Division, and incorporated
insightful views of the staff of Hong Kong
Securities Clearing Company Limited and
the Stock Exchange of Hong Kong. The
author wishes to emphasise that this
paper reflects her personal views of the
subject matter and should not be regarded
as binding on the Commission in any
respect.
ABSTRACT
The paper
discusses
the
main
features of Hong-
kong Clearing's new 'compulsory' stock bor-
rowing programme, the reasons behind its
implementation, the risk exposure of lenders
and the borrower (ie Hongkong Clearing), and
problems associated with the lack of
collateral
for
loaned
stocks and
possible
solutions.
INTRODUCTION
Hong Kong Securities Clearing Company
Limited (Hongkong Clearing) launched a
'compulsory' stock borrowing facility
(CSB) on 17th May, 1999. The facility
allows Hongkong Clearing to borrow
stocks in CCASS1 as a principal to satisfy
its delivery obligations to buying brokers
when selling brokers fail to settle on
T + 2.2 The borrowings arc 'compulsory'
in the sense that they will occur automati-
cally at the end of T + 2, assuming stocks
are available to borrow, at the initiation of
Hongkong Clearing and without any
involvement of selling brokers.
The CSB facility was suggested by the
Hong Kong Government in its 30 measures
for strengthening the order of the financial
market. If its implementation is successful
and there are enough lenders participating,
Hongkong Clearing will consider expand-
ing the facility later in 1999 to include
voluntary stock borrowings between
CCASS participants whereby the transac-
tions will be novated and guaranteed by
Hongkong Clearing.
In order to launch the CSB facility, cor-
responding amendments have been made
to Rule 15 of the Securities (Dealers,
Investment Advisers, Partnerships and
Representatives) Rules of the Securities
Ordinance (Cap. 333), and Rules of the
Stock Exchange of Hong Kong (the Stock
Exchange). These amendments will be dis-
cussed in the subsequent sections of this
paper.
Journal of Financial Regulation
and Compliance, Vol. 8, No. 1,
2000,
pp. 57-66
© Henry Stewart Publications,
1358-1988
Page 57
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