The dollar clearing system was commissioned by the HKMA in March, with the Hong Kong and Shanghai Banking Corporation appointed as the settlement institution. Fifty five banks as well as the HKMA itself will join as direct participants of the system following a series of successful simulation tests conducted by the HKMA, HSBC, Hong Kong Interbank Clearing Limited (the operator of the system), and the participating banks.

Mr Joseph Yam, Chief Executive of the HKMA, said: 'With an efficient and reliable US dollar clearing system in Asia, the Herstatt risk – which is the foreign exchange risk related to time zone differences – associated currently with the settlement of US dollar denominated transactions in New York time, can be reduced, if not eliminated. This US dollar real time gross settlement (RTGS) system will be an important addition to the region’s financial infrastructure and will strengthen Hong Kong's position as an international financial centre.'

Mr David Eldon, Chairman of the Hong Kong and Shanghai Banking Corporation Limited, commented 'By enhancing US dollar settlement efficiency and reducing settlement risks for local banks, the system will provide the necessary infrastructure for Hong Kong to further develop its stock and debt markets and attract more investment. This will bring new business opportunities for the financial sector in Hong Kong.'

The system will be launched in three phases, with full implementation expected by the year-end. The first phase will launch the US dollar RTGS system for interbank payments as well as delivery versus payment (DvP) settlement for US dollar denominated stocks traded in Hong Kong. This clearing capability will allow products traded on the securities and derivatives markets of Hong Kong Exchanges and Clearing to be denominated and cleared in US dollars. Similarly, locally traded NASDAQ shares can also be settled in US dollars.

The second phase, to be launched on 25 September, will facilitate payment versus payment (PvP) settlement for foreign exchange transactions between US dollars and Hong Kong dollars.

The third phase, covering US dollar paper cheque clearing and the RTGS interface with the Central Moneymarkets Unit (CMU) for settling US dollar denominated debt securities, will be launched before the end of December. It will mean that customers can open US dollar current accounts with banks in Hong Kong, with the settlement cycle shortened to next-day settlement compared with the current two-week period. The RTGS/CMU interface allows DvP settlement of US dollar denominated debt securities in the CMU and also enables automatic intraday repos for the RTGS system.

Esmond Lee, the head of Market Systems for HKMA, said the launch marked the first real-time US dollar settlement system in Asia and if it proved to be efficient and user-friendly, it would be highly competitive and attractive to foreign investors.