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HRE

Shangha-Hong
Kong Stock Gonnect

Enhanced Pre-Trade Checking Model

Briefing to Participants
January 2015

Agenda

Existing Pre-trade Checking Model

Enhanced Pre-trade Ghecking Model

Modified Risk Management Measures for Enhanced Model

lmplementation Schedule

Appendix

I{KEX

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Agenda

Existing Pre-trade Checking Model

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Existing Pre-trade Checking Model


What is Pre-trade checking?

SSE

Route
order to
Replicate
shareholding

CCASS

r EPI

'31i'31"i'csc

DCPl

-I

l.
I

tl
L

rl

tI

)
tan
Institutional lnvestor
lnstitutional lnvestor

SSE

:l"^':l*:d

Ghecking

orders

How is it done?

lnvestors who use custodians must transfer


shares from their custodians to the selling
EPs before market open

CCASS will take snapshot of each DCP &

I
I

GCP's SSE Securities holdings each


business day and replicate to CSC to
facilitate Pre{rade Checking

mechanism to ensure EPs will have


sufficient sellable quantity when placing sell

Sell orders by an EP will be rejected by


CSC if the EP's cumulative sell quantity in
that stock for the day is higher than its
stockholdings during market open

---)
......)

-)

Share transfer
Shareholdin g replication

Order routing
Snapshot

Who to ensure investors will not oversell?

EPs' responsibility to ensure they have in


place procedures and systems to prevent
their clients from day trading and overselling
of SSE Securities

Limitations of Existing Pre-trade Checking Model

'FIK''

Pre-trade delivery of shares by investors from custodians to broker

Frequent movement of shares between custodians and brokers may


cause operational burden and costs

r
r

lnconvenient for investors to trade via multiple brokers

The design is not in line with the practice of institutional investors


where they move shares to brokers for settlement only after their
orders are executed

Solution: Develop an enhanced Pre-trade Checking Model to address ffie above limitations.
The Enhanced Model is optional and will run alongside the Existing Model.

}IKEX

Agenda

ffi*etr

Existing Pre-trade Checking Model

Enhanced Pre-trade Checking Model

Modified Risk Management Measures for Enhanced Modetr

lm

plementation Schedule

Appendix

Enhanced Pre-trade Checking Model


r Special Segregated Accounts of Gustodians
How does it work?
As an add-on to existing model:

SSE
Route
order to
SSE

CCASS
EPl

I
I
I
I
I
I

Replicate
shareholding
information to
CSC on each

Custodians* upon investors' requests to


open Special Segregated Accounts

(SPSA) and CCASS will generate a


unique lnvestor lD. The SPSAs are for
keeping shareholding of investors

csc

separately

Pre-trade
Checking

Yes

ustodian
SPSA I
SPSA 2
SPSA 3

CCASS will snapshot SSE Securities


holdings under custodians' SPSAs and
replicate to CSC to facilitate Pre-trade
Checking

lnvestors should inform its designated


EPs the assigned lnvestor lDs for Pretrade Checking when placing sell orders

---)
......)

-l>

Share transfer

Shareholding replication
Order routing

Custodians transfer shares from the

SPSA

to the

relevant

Clearing
Participants for settlement (based on
i nvestors' nstructions)
i

Snapshot

Under enhanced model, investors who use custodians only transfer SSE Securires
to Clearng Participants after sell order exec.rtion (Post-trade Delivery)
* lncluding GCPs who are non-EPs
and Custodian Participants of CCASS

SPSAs Leverage on Existing SSA Accoun


Non-EP GCPs & Custodian Participants of CCASS can set up an SPSA via existing "Add Stock Segregated
Account" function in CCASS. Any SSA set up by Custodian within the specific range "800XXXXX" will be
classified as SPSA. CCASS will generate a unique Investor lD for each SPSA.

80000001

611682

80000002

720462

80000004

224462

80000001

600002

80000003

129641

Creation of SPSA at CCASS


Sample CCASS Screen showing creation of SPSA

3loc

Clfi

SgrcllttGdcrontulbr:

Aerdt lJnbar

8ffi.t

Must be

tn

"800XXXXX" format

CCASS will generate Investor lD


upon successful creation of SPSA by
Custodians / non-EP GCPs

SPSA Setup Procedure

lnstitutional
lnvestor

Custodan
@Create SPSA(s) and get
lnvestor lD(s) in CCASS

o
@

EP1, EP2, EP3

lnput lnvestor lD for sell


orders at CSC

Each investor can request its custodian(s) to open SPSA(s) for holding SSE securities
Custodian opens SPSAs in CCASS online. CCASS will assign an unique lnvestor lD for each SPSAopened

Custodian will complete and return the SPSA Form

to HKSCC (with the authorized signatures from both

Custodian and the designated EP)


HKSCC will inform SEHK to set up the unique lnvestor lD of the SPSA and the list of designated EP(s) in CSC
Upon notification, custodian can start transferring the investor's shareholdings to the SPSA so that EP can start
selling SSE securities for lnvestor from SPSA

Custodians sfrall give prior notice of not less than five business days to HKEx
for adding or updating SPSA and list of designated EPs
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SPSA Form
L

Notes:

ll*dil
fffe(tive

I'.

tlneler*
Date:

t_l_l I l_{_i/ l_l*.l

I MM / YY

Custodians or non-EP GCPs are required to fill in


the SPSA number and lnvestor lD on the Special
Segregated Account and Designated Executing
Broker Maintenance Form ("SPSA Form"), which
will be available on HKEx website

To add or delete a designated Executing Broker (EP)


for the investor, Custodian Participant or GCP shall
give prior notice of not less than five business davs

Custodian Participant or GCP will be notified and


the newly designated Executing Broker (EP) can
start using the lnvestor lD on and after the effective
date specified in the form. For delete request, the
originally designated Executing Broker (EP) will not
be able to use the lnvestor lD to place sell order on
and after the effective date specified in the form.

$PECIAI SEGRCGATED ACCOIJN DITILS

Sreciaf Stock Segregatecl Acccru:rt

III.

DTASL5

OI EXCLITN

No,: l*8_*_l_*i_l j__l_l

SROKR DSIGhATEI, 8Y THE ?NWSTR

Flease lrorrirle cJetf: of the Exclrange Partciparrt ele:griateeT by the inve:tor fcr execrtio:
Cltin fr:n rect

lecirities:

cf

l__t_i_i_t_l

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Sell Order lnput and Pre-trade Checking at CSC


: CSC will verify:

io

EP A is a designated broker for the

I| .)
I

investor 1
lnvestor t has sufficient holding in
ts account

t- - -

i lf both checking pass -> Accept order


I lt eittrer checking fails -> Reject order
I

Sell
order

L--

! orders from

tt
r with SPSA
L--

lnvestor

Notes:

1.

lnvestor can appoint at most


20 EPs as brokers for each
lnvestor lD

2.

lnvestor lD is not applicable to


buy orders

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Securities Settlement
r Post Trade Transfer for Short CNS Stock Position
How to settle CruS Se// obligation from SPSA ?
Before CNS Batch Settlement Run (BSR) on T day,

For non-EP GCPs:


Transfer the CNS sell
quantity from SPSA to
Clearing Account via STl,
via two new STI transfer
runs for SPSAI

For Custodian Paicipants:


Transfer the CNS sell quantity from
SPSA to Clearing Participant via Sl,
via two new Sl BSR2

cPl

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Other changes to facilitate Pre-trade Ghe


r Change of GGASS Processing Schedule

Revise the CNS batch settlement run schedule for SSE Securities
- 1"t run: 16:30 ) 17:30

2nd

run: 18:00

19:00

Additional Sl matching runs

13:45
17:30
19:00

Additional Sl batch settlement runs (for SPSA as delivering account only)

17:30
19:00

Additional ATI / STI validation


17:30

STI batch transfer runs in two groups and additional runs


Addtional STI batch transfer runs at 17:30, 19:00 and 20:00 will be applicable to SPSA
Existing STI batch transfer runs, including the additional run at 17.30, will be applicable to non
SPSA only

Refer to Appendix 1 for CCASS Repod Enhancement

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Enhanced CCASS Processing Schedule for A-share Market


A Shares Trading
Sessions
CNS BSR

.::

EHl",.fli",.

SI BSR

Sl Matching
run

ATI

validation
STI

validation
STI Batch Transfer
(exclude SPSA)

STI Batch Transfer


(SPSA only)

f4

E
83":t'#i,'"::,,

Only from SPSA


to clearing account

Other changes to faclitate Pre-trade Checkin g(21


r Change of CCASS Functon Times and Reports
1) CCASS function time changes

Market

Original Function

18:15 to 19:30

Change Dl Requirement

Time

New Function Time

19:15 to 19:30
O7:15

Subscription lnstruction Maintenance

18:00 to 19:00

to 19:00

08:00 to 19:45 (for rights issue subscription)


19:00 to 19:45 (for takeover offer)
08:00 to 19:45

* lmpact to

all CCASS Participants

2) New value in reports to indicate Sell Trades from SPSA


Report

lD

Report

Name

Market

New Value

Final Clearing Statement

"lo wiJl be

lntra-day Trade File

"1"

shown in the "Origin lnd,icatod' for sell trades from SPSA

will be shown in the "Origin lndicator" for sell trades from SPSA

3) New CCASS Data File - Trade File of SPSA


(available to Custodians / non-EP GGPs only):
Repo

ID

Report

Name

Time

File Content

16

Other changes to facilitate Pre-trade Checking(3)


I SI DVP
r
r

Currently, only Free of Payment (FOP) Sl is allowed for SSE Securities


Delivery versus Payment (DVP) Sl for USD, HKD and RMB will be added to enhance the settlement
process of SSE Securities, settlement amount detail will be displayed in the "Enquire Money Position"
function of CCASS

Time of EPI Generation for DVP Sl:

Generation Payment Gonfirmation

Time of Sl Settlement

EPI

Morning Sl BSR at around 07:45

After 16:00

17:45

After morning Sl BSR

After 20:00

Next Day 09:30

17

Refer to Appendix 2 for CCASS enhancement due to Sl DVP of SSE Securifres


be available by mid-January 2015

Agenda

xisting Pre-trade Checking Model

Enhanced Pre-trade Checking Model

Modified Risk Management Measures for Enhanced Model

Implementation Schedule

Appendix

Modification to Existing Risk Management


Measures on Northbound Trades

Pre-trade checking of holdings


under GP

Existing

New

Pre-trade stock delivery to CP

Pre-trade checking of holdings


under registered custodian's SPSA

account
For SPSA trades, pre-trade delivery
of stocks to GP is NOT required

l{I(En
firW,ffi

Low risk of settlement


failure for short positions

Risk of settlement failure


choose not to deliver stocks
in SPSA to CP in certain
circumstancesl

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Modification to Daily Mainland Settlement Deposit


Requirement
Daily Mainland Settlement Deposit Requirement:

Gurrent:

New:

Settlement deposit ratei

x
(CP's daily buy turnover in SSE Securities

Settlement deposit rate


x
(GP's daily buy turnover in SSE Securities

Overdue short positions in SSE Securities)

Overdue short positions in SSE Securities


+
,- - r - -I
- Oaily sell turnover from SPSA'l

I
r

_ _ _ _ jls_s_e_sgiriti":)_ _ _ _l

Note 1: Settlement deposit rate is currently at 20%

20

Modification to Monthly Mainland Settlement


Deposit Requirement
Monthly Mainland Settlement Deposit Requirement
Gurrent

Gurrent

New

Sum of CP's daily buy turnover

* overdue short positions


in the previous month *
Number of days having
buy turnover by the CP
in the previous month

Number of days having


sell turnover by the SPSA
in the previous month

X Settlement Deposit Rate

Note:

* For
the day without buy turnover in SSE Secunre s, overdue shotT positions witl be excluded from the "ELtm of CP's daily
buy turnover in SSE Securifies + overdue short poslions /n SSE Securlies in the previous month" in calculating the Monthly
Mainland Settlement Deposit requirement.

CPs who do not have SPSA selj trade

will not be affected


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Galculation of Mainland Settlement Deposit


Requirement - Same as Today
1. Mainland Settlement Deposit Requirement:
Higher of

And

2. Amount

to be collected from GP:

hand

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Galculation of Mainland Settlement Depost

An Example

(20,000)

o
o
No Special Segregated Accaunt's sell
turnaver

Notes:
1. MSTD = Mainland Settlement Deposit
2. Refund (if any) will only be made on the 1Oth business day of the month. lf thelOth business day of the month is not a trading day in A-share market, refund will be made on next
business day which is a trading day in A-share market.

Modification to
Payable Report

ettlement Deposit
)

Additional field "SPSA SELL TURNOVER lN A SHARES" will be added to cater the change of:
Daily Mainland Settlement Deposit Requirement
Monthly Mainland Settlement Deposit Requirement

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24

Agenda

Existing Pre-trade Checking Model

Enhanced Pre-trade Checking Model

Modified Risk Management Measures for Enhanced Model

lmplementation Schedule

Appendix

lmplementation Schedu le (Tentative)

Expect enhanced service Iaunches in 1Q 2015*

hnd of

o
o
December 2014

Early

March 2015
- System Launch

February /
Early March
2015
- Rollout Test

January 2015
- Briefing Session

-Tech nical S pecification

Subject fo SFC's approval and the final schedule will be furfher announced via circular

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Agenda

Existing Pre-trade Checking Model

Enhanced Pre-trade Checking Model

Modified Risk Management Measures for Enhanced Model

lmplementation Schedule

Appendix

Appendix 1

CCASS Report Enhancement


1l Revised report qeneration time / frequencv

CSEBAOl

ATI Batch lnput Control Report

GLOB

CSEATOl

STI Batch lnput Control Report

GLOB

CSEATO2

STlActivity Report

CCLUSOl

Unmatched Sl Report

CSESI02

lntra-day lSl / Sl Full List

CSESPO4

lntra-day Settled Position Reporl

cFtBr0l

Buy-in Notification Report

MAMK

MAMK

09:15, 10:00, 11:30, 12:45,15:15, 17:00, 17:30,2O:0O

Additional ATI batch


validation run
Additional STI batch
validation run

09:15, 10:00, 12:45, 15:30, 17:O0, 17:.3O, 19:00, 20:00

Additional STI batch


transfer runs

08:15, 12:15, 14:15, 15:30, 17:30, 18:00, 19:30, 20:00

Additional Sl matching
runs

08:15, 12:15, 14:15, 15:30, 17:30, 18:00, 19:30, 20:00

Additional Sl matching
runs and Sl BSR

08:15, 18:00, 19:30

Revise of CNS BSR

19:15

Revise of CNS BSR

2) New field value to indicate sell trades oriqlnated from SPSA

Report

lD

ccltD0l

Report

Name

Market

New Value

Final Clearing Statement

"l" will be shown in the "Origin lndicato/' for sell trades from SPSA

lntra-day Trade File

"1"

will be shown in the "Origin lndicator" for sell trades from SPSA

3) New CCASS Report - Trade File of SPSA


(available to Custodians / GGP who are non-EP only):

Report

lD

Report

Name

Trade File of SPSA

Market Time

File Content

Showing detail

of the sell trades from

SPSA, including trade time,

counterparty participant lD, execution broker firm lD, SPSA account number,
to facilitate the preparation of STI / Sl by Custodian for CNS settlement

Appendix2

CCASS Enhancement for Sl DVP


DVP Sl information

be displayed

different sections

"Enquire Money Position" function

Money Obligation

for*hare Martet
ReGfobJecfrlp{,

Shows settlement amount from Sl settled


on previous business day (except those Sl
settled at 1"tBSR)

t*ffffi

mount
5,00t 00

Rcavtr/fteccivcd
mount
s,ts.0
Fece

fuabftecelve

3,00,{x}-

tt"ffJfr

*tffiffi

5,o(s.0t

eivabRsceived
Amount

Shows settlement amount from Sl which


EPls are not yet delivered to HKICL
Reee

Shows settlement amount from Sl with


settlement date < = current CCASS date

?,000,00

*tArnort

3,qxi.00"

Amount

Shows settlement amount from Sl settled at


1st BSR (i.e. 07:45) of current day

itAmount

2,000,00

net Amount

3,00{1,00" 2,{m,m

"^ifiiffi

-etlmount

4,000,00

3noo0,{10-

r,o0,0

2,000,{xl

5,)f.00"

4,00,0-

,000,CIo

9,000,0"

3,00.0-

ivbleJReceod
Amount
2,000,00
?,00.00
4,00.00

o*mrf

etAmount

6,000,00-

l,o.ot-

6,00.ffi
t,Wffi^

4,p.0eA,{4.S-

Detail of SSE Securities Sl with DVP as settlement method will be included in the following reports:
r DDI / DCI / EPI Summary for Participant (CSEMA28 / CSEMS2S)
r Settlement Related EPI Listing (CSEMA29 / CSEMS29)
I CCASS Funding Projection Report for Participant (CSEMP02)
30

Appendix 3
Other Features of SPSA

Voting Delegation
SPSA holders delegate the input of voting instructions to CP and are not
allowed to input voting instructions themselves

Nominee Services

Subscription for
SMS / Email Alerts

Not available to SPSA

Hard Copy
Statement Services

Not available to SPSA

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