The real time gross settlement system (RTGS) will not risk overload despite direct participation from restricted licence banks, the Association of Restricted Licence Banks and Deposit Taking Companies says. Association chairman Alex Au Mo-cheung said participation in the system involved huge costs which all the restricted licence banks (RLBs) would not be willing to bear. Even if the Hong Kong Monetary Authority (HKMA) extended settlement system membership - which is restricted to the 182 full-licence banks in Hong Kong - to include the territory's 62 restricted licence banks, only a 'handful' would eventually be expected to apply to join the system. This 'handful' would create no additional capacity pressure on the system, Mr Au said. Restricted licence bank participation had been one of the major issues raised two years ago when the authority's proposal to implement the system was under consultation. The authority finally determined it would exclude restricted licence banks in the first phase of its operation. Three month after the introduction of the system on December 9, complaints from banks about the slowness of the settlement system remain common. This highlights the banking industry's doubts about the capacity and efficiency constraints of the new system. Restricted licence banks can gain access to the system through participating banks as if they were bank customers. Industry observers said as most restricted licence banks were engaged in stock trading margin finance operations, some hoped to enjoy the convenience and risk reduction by participating in the system directly. This was especially true during new share subscriptions which involved large-volume transfer of funds. Mr Au said not all restricted licence banks were aware of the heavy cost of participation in the system when they expressed their willingness to join. Institutions joining the system are required to hold a certain amount of Exchange Fund papers, which are sold to the HKMA for intraday liquidity to settle interbank payments. Exchange Fund papers usually yield less than the Hong Kong interbank-offered rate. This difference in returns constitutes the cost of holding Exchange Fund papers. Mr Au said the association was surveying its members about their knowledge of the system and the requirement to upgrade their computer systems. At the same time it was consulting with the HKMA on its requirements for participation in the system. REAL TIME GROSS SETTLEMENT Membership restricted to the 182 full-licence banks in Hong Kong Only a handful of restricted banks interested Complaints about slowness of system common
