Citi rolls out HK exchange clearing service

Move follows recent legislation allowing Hong Kong exchange members to outsource clearing and custody.
Drawing on its experiences in other Asian and European markets, Citigroup has launched a new securities exchange clearing service in Hong Kong. Citi believes the new platform will put it in a leading position, since it will become the first custodian bank to act as settlement agent in Hong Kong for an external party. This follows changes to local legislation enabling exchange members to outsource clearing and settlement activities.

Under the new service, Citi will provide back office securities clearing services and will act as an account operator for exchange members, as well as report through the SWIFT network. Services will include handling certain operational activities relating to trades executed on the Hong Kong stock exchange.

On the settlement side, Citi will offer broker dealers end-to-end outsourcing services for clearing, settlement and asset servicing of Hong Kong equities. The group will also provide processing of all securities transactions and supporting functions such as cash projections, stamp duty payment and reporting, corporate actions and income collection.

All in all, Citi says the product will reduce infrastructure requirements and maximize efficiency for Hong Kong-based broker dealers. The new service also differentiates itself from a fund administration platform, in that it will target brokers executing trades on the exchange, rather than over the counter transactions.

├┤The securities exchange clearing services provided by us resulted from interest from broker dealers and subsequently, a change in Hong Kong legislation allowing exchange members to outsource their clearing and settlement activities," says Michael Drumgoole, Hong Kong based regional product manager for custody and clearing at Citigroup's Global Transaction Services. "The product is designed for exchange member brokers that are after scalability, accessibility and looking to outsource back office services."

Citigroup began lobbying for changes in 2000, in response to broker demand for more outsourcing and greater flexibility in their back offices.

The launch of the securities exchange clearing service in Hong Kong is not Citi's first regional foray in this element of the clearing business. Last year, the group unveiled similar securities exchange services in Singapore and Malaysia to complement its existing expertise in Australia and Europe.

"The platform is closer to a standardized custody service, but exclusively directed at broker dealers," says Drumgoole. "Clients who use the service in Europe want to use the service in Asia, and following legislation changes permitting exchange members to outsource clearing and settlement activities, the interest in Hong Kong was definitely there."

Since its Hong Kong launch, Citigroup has already signed one client and expects to see many more in the near future.
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