Hong Kong's foreign-exchange and debt markets will be bolstered by next month's launch of a US dollar clearing system, according to Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong. He told the Business Post yesterday the system would provide real-time US dollar-settlement services for foreign-exchange traders and investors, reduce settlement risks and at the same time increase efficiencies. It would also link up with Hong Kong Exchanges and Clearing's US dollar securities clearing system to be introduced on August 21, Mr Yam said. This will be a breakthrough for the local stock market - allowing locally listed companies to issue US dollar-denominated shares. They are at present restricted to Hong Kong dollar-denominated securities. 'The settlement time of US-dollar forex trading and US debt trading in the SAR will be shortened substantially,' Mr Yam said. 'After settlement efficiency is increased, more investors will be encouraged to trade in the local forex and debt markets.' The facility will enable US dollar trades in the local foreign-exchange market to be settled immediately through the HKMA's new clearing system - a vast improvement on the existing 12-hour wait for the United States' market to open. The HKMA has appointed HSBC as its clearing agency for the services. Mr Yam said clearing systems for other currencies could be developed if the US dollar arrangement proved successful. He also hopes to see the HKMA's US dollar clearing system being used by traders in other Asian markets and so help strengthen Hong Kong's position as an international finance centre. According to Hong Kong Exchanges and Clearing, the next step will be to implement its plan to promote US dollar-denominated shares, as these listings will help to diversify the market structure. Hong Kong Exchanges and Clearing chairman Charles Lee Yeh-kwong has said many mainland companies would be prepared to issue US dollar-denominated securities on the SAR market. These companies needed US dollars to pay for imported materials. International Bank of Asia senior vice-president Davy Kwan Kwok-ki was confident the US dollar clearing system would increase trading in US debt securities. 'At present, about 80 per cent of debt securities are issued in US dollars,' he said. 'When these securities can be settled by the local clearing system, it will help to encourage more investors to trade these securities. As a result, more companies will consider the possibility of issuing US dollar debt in Hong Kong.' Another banker said the introduction of the US dollar clearing system would help to stabilise the local currency's US dollar peg system. This was because of a real-time clearing system's ability to enable locally listed companies to issue US dollar securities. He also said it would allow fund managers to use US dollars to trade US-denominated stocks or debt securities, providing a seamless process without the trouble of having to exchange US dollars for Hong Kong dollars. This would help to reduce any volatility in the HK dollar-US dollar exchange rate because of inflows and outflows of stock and debt-market investments. Meanwhile, Mr Yam yesterday said the Exchange Fund would be hit with a loss from the first half of the year as a result of a drop in the value of the Government's stock portfolio. The stocks represent almost 20 per cent of the Exchange Fund. 'With the Hang Seng Index down almost 2,000 points in the first six months, it would not be a surprise if the Exchange Fund was to have suffered an investment loss in this period,' Mr Yam said.