CSDC provides funds and securities settlement services for trading of securities listed on the Exchange.
i. Settlement Principles
1. Two-Tier Settlement
"Tier One" settlement can be classified into two categories based on whether CSDC acts as a central counterparty (hereinafter referred to as “CCP”). When CSDC provides multilateral netting service as a CCP, it is responsible for centralized clearing and settlement of securities and funds with clearing participants; When CSDC acts as a non-CCP, it provides clearing and settlement services for clearing participants. “Tier Two” settlement generally refers to the settlement between clearing participants and their clients.
2. Delivery Versus Payment
Delivery versus payment means that securities will be delivered if and only if funds are paid and vice versa during the settlement process. A clearing participant who fails to have a sufficient amount of securities or funds available for settlement cannot obtain the corresponding funds or securities.
ii. Settlement Modes
For different securities instruments, CSDC may mainly provide three types of settlement services: guaranteed net settlement, non-guaranteed gross settlement, and collection and payment service.
1. Multi-lateral Netting Settlement
Multi-lateral Netting Settlement means that CSDC gets involved in the securities post-trade process as the settlement counterparty for all buyers and sellers, which offsets securities and funds receivable and payable from and to each clearing participant to calculate net funds and securities receivable and payable, and to complete guaranteed settlement with clearing participants on the settlement day based on the net clearing results. Multi-lateral Netting Settlement helps to simplify the settlement procedures and improve settlement efficiency. Meanwhile, CSDC manages counterparty credit risks in a centralized manner in accordance with the applicable clearing rules, contributing to the control and mitigation of the overall risks in the market.
At present, CSDC provides Multi-lateral Netting Settlement services for the trading of A-shares, treasury bonds, a portion of corporate bonds (enterprise bonds), closed-end funds, pledged bonds repos, ETFs share trading, portfolio and cash in-lieu from the subscription and redemption of some ETFs, Real-time Subscription and Redemption Money Market Funds and other trading instruments.
2. Real-Time Cross Settlement
Real-Time Cross Settlement means that CSDC only provides separate clearing for each securities transaction without acting as a central counterparty or undertaking the responsibility of guaranteed settlement and offset the funds and securities receivable and payable from and to each clearing participant. The settlement fails if any clearing participant is unable to provide a sufficient amount of funds or securities at the time of settlement. The settlement period of non-guaranteed gross settlement includes real-time gross settlement (RTGS), T+0 and T+1, which is pre-determined by the categories of trading instrument.
Currently, Real-Time Cross Settlement applies to transfer of private placement bonds, pledged bond quotation repos, subscription and redemption of some ETFs and cash in-lieu transactions, transfer of corporate bonds and specific asset management programs not qualified for netting, transfer of non-publicly offered preferred stocks, other offering activities, agreed repurchase securities trading and exchange of exchangeable corporate bonds for stocks.
3. Collection and payment service
Collection and payment service is a value-added service provided by CSDC to clearing participants for funds transfer. Clearing participants and other entities may complete the clearing procedures on their own and submit clearing data to CSDC. CSDC then completes the transfer of funds based on data confirmed by the payer in accordance with relevant rules. Insufficiency of funds from the payer will result in failure of such transfer.
At present, CSDC can provide collection and payment service for subscription and redemption of some ETFs, refinancing activities and fund subscription and redemption, etc. It can also meet the demands for settlement of other OTC funds.