The Clearing House Automated Transfer System, or CHATS, is a

real-time gross settlement Real-time gross settlement (RTGS) systems are specialist Electronic funds transfer, funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a "real-time" and on a "gross (economics), gross" ba ...

(RTGS) system for the transfer of funds in

Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China ( abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delt ...

. It is operated by Hong Kong Interbank Clearing Limited, a private company jointly owned by the

Hong Kong Monetary Authority The Hong Kong Monetary Authority (HKMA) is Hong Kong's central bank, central banking institution. It is a government authority founded on 1 April 1993 when the Office of the Exchange Fund and the Office of the Commissioner of Banking merged. Th ...

(HKMA) and the

Hong Kong Association of Banks The Hong Kong Association of Banks (HKAB; Chinese language:香港銀行公會 or 銀公會 in short) is an association created based on a series of Bank Ordinances enacted since 1948. In 1981 the association was established and replaced the Exch ...

. Transactions in four currency denominations may be

settled A settler is a person who has migrated to an area and established a permanent residence there, often to colonize the area. A settler who migrates to an area previously uninhabited or sparsely inhabited may be described as a pioneer. Settle ...

using CHATS:

Hong Kong dollar The Hong Kong dollar (, currency symbol, sign: HK$; ISO 4217, code: HKD) is the official currency of the Hong Kong, Hong Kong Special Administrative Region. It is subdivided into 100 cent (currency), cents or 1000 Mill (currency), mils. The H ...

renminbi The renminbi (; symbol: ¥; ISO code: CNY; abbreviation: RMB) is the official currency of the People's Republic of China and one of the world's most traded currencies, ranking as the fifth most traded currency in the world as of April 2022. ...

euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...

, and

US dollar The United States dollar (symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official ...

. In 2005, the value of Hong Kong dollar CHATS transactions averaged HK$467 billion per day, which amounted to a third of Hong Kong's annual

Gross Domestic Product Gross domestic product (GDP) is a money, monetary Measurement in economics, measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjec ...

(GDP); the total value of transactions that year was 84 times the GDP of Hong Kong.

History

Prior to the launch of CHATS as a RTGS system, interbank settlements in Hong Kong relied on a multi-tier system which settled on a daily net basis. About 170 banks settled with ten clearing banks. These ten banks, in turn, settled with

Hongkong Bank The Hongkong and Shanghai Banking Corporation Limited (), commonly known as HSBC (), was the parent entity of the multinational HSBC banking group until 1991, and is now its Hong Kong-based Asia-Pacific subsidiary. The largest bank in Hong ...

, which then settled with the HKMA on a one-to-one basis. Hongkong Bank acted as the

clearing house Clearing house or Clearinghouse may refer to: Banking and finance * Clearing house (finance) * Automated clearing house * ACH Network, an electronic network for financial transactions in the U.S. * Bankers' clearing house * Cheque clearing * Cl ...

under this system, settling payments across its books on a net basis on the day following the transactions. The HKMA decided that this did not meet international standards as set by G10's

Committee on Payment and Settlement Systems The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work thr ...

; following a six-month feasibility study, in June 1994, it decided to develop CHATS as an RTGS system. After two years of development, CHATS for Hong Kong dollars was launched on 9 December 1996. CHATS for US dollars and euros were launched on 21 August 2000 and 28 April 2003, respectively. In July 2007, the Regional CHATS Payment Services was also launched to link all participants in the three different CHATS versions for transactions involving currency exchange.

Features

CHATS, like other RTGS systems, settles payment transactions on a "real time" and "gross" basis—payments are not subjected to any waiting period and each transaction is settled in a one-to-one manner such that it is not bunched with other transactions. It is a single-tier system where participants settle with one central clearing house. Payments are final, irrevocable, and settled immediately if the participant's settlement account with the clearing house has sufficient funds. Daylight

overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...

is not offered in CHATS; payments that cannot be settled due to insufficient funds are queued. Banks are able to alter, cancel, and re-sequence payments in their queues. Banks can obtain interest-free intraday

liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity, the ease with which an asset can be sold * Accounting liquidity, the ability to meet cash obligations when due * Liqui ...

through

repurchase agreement A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two par ...

s (repos). This prevents banks from having to maintain large balances in their settlement accounts, which accrue no interest, to cover their payments. Intraday repos that are not reversed at the end of the business day are carried into overnight borrowing. To access RTGS system functions, banks must connect to the SWIFT network to initiate/receive payment instructions, and access eMBT provided by HKICL for performing administrative functions to respective payment instructions.

Hong Kong dollar CHATS

The HKMA, which is Hong Kong's central banking institution, acts as the clearing house for Hong Kong dollar (HKD) CHATS. All licensed banks in Hong Kong maintain HKD settlement accounts with the HKMA, and as of June 2000, restricted license banks "with a clear business need" may also open settlement accounts with the HKMA. The volume of transactions in HKD CHATS in 2007, in raw number of transactions, totaled at 5,499,494. The total value of all transactions conducted in the same year was about HK$217 trillion. As of 28 December 2015, there are 156 participating banks with HKD CHATS.

US dollar CHATS

Unlike HKD CHATS, the clearing house for US dollar (USD) CHATS is a commercial bank,

Hongkong and Shanghai Banking Corporation The Hongkong and Shanghai Banking Corporation Limited (), commonly known as HSBC (), was the parent entity of the multinational HSBC banking group until 1991, and is now its Hong Kong-based Asia-Pacific subsidiary. The largest bank in Hong K ...

(HSBC). In addition to obtaining intraday repos for payment settlement, participating banks may also obtain intraday liquidity via an overdraft facility provided by HSBC. Banks in Hong Kong are not required to participate in USD CHATS; they may choose to join as direct participants or indirect participants. Direct participants maintain USD settlement accounts with HSBC for payment transactions in CHATS. Indirect participants must conduct their payment transactions through direct participants. Additionally, a membership category called Indirect CHATS Users exists where its banks also conduct their payment transactions through direct participants. The volume of transactions in USD CHATS in 2007, in raw number of transactions, totaled at 2,121,058. The total value of all transactions conducted in the same year was about US$2,127 billion. As of 28 December 2015, USD CHATS has 100 direct participant member banks, 24 indirect participant member banks, 87 Indirect CHATS User member banks, and eight Third Party User member banks.

Euro CHATS

Euro CHATS is structured similarly to USD CHATS. Its clearing house is also a commercial bank,

Standard Chartered Hong Kong Standard Chartered Hong Kong (officially Standard Chartered Bank (Hong Kong) Limited, ) is a licensed bank incorporated in Hong Kong and a subsidiary of Standard Chartered. It is also one of the three commercial banks licensed by the Hong Kong ...

. Participating banks may obtain intraday liquidity via an overdraft facility provided by Standard Chartered Bank. Like USD CHATS, banks in Hong Kong are not required to participate in Euro CHATS. Euro CHATS has two categories of membership, Direct Participants and Indirect CHATS Users; they function in the same manner as the categories in USD CHATS. The volume of transactions in Euro CHATS in 2007, in raw number of transactions, totaled at 18,169. The total value of all transactions conducted in the same year was about €280 billion. As of 28 December 2015, Euro CHATS has 37 Direct Participant member banks and 18 Indirect CHATS User member banks.

Renminbi CHATS

CHATS uses

Bank of China (Hong Kong) Bank of China (Hong Kong) Limited () also known as its short name Bank of China (Hong Kong) or BOCHK (), is a subsidiary of the Bank of China (via a Hong Kong-listed intermediate holding company BOC Hong Kong (Holdings)). Bank of China (Hong K ...

as its clearing house for settling renminbi payments. Bank of China has a settlement account on the China National Advanced Payment System (CNAPS), allowing renminbi CHATS to effectively work as an extension of the Chinese system.

References

{{reflist Banking in Hong Kong Real-time gross settlement