U.S. Markets closed

HKEx applies deeper haircuts on US T-bills used as collateral

HONG KONG, Oct 10 (Reuters) - Hong Kong Exchanges & Clearing (HKEx) will apply a deeper discount on U.S. Treasuries used as margin collateral, according to a circular from the clearing house effective from Thursday.

While the circular did not give a reason for the change, a government shutdown in the United States has raised concerns about the outcome of talks to raise the debt ceiling there and prevent a default on U.S. government paper.

HKEx, the holding company for The Stock Exchange of Hong Kong Ltd, Hong Kong Futures Exchange Ltd and Hong Kong Securities Clearing Company Ltd, will now apply a haircut of 3 percent versus the current 1 percent for bills with a maturity of less than a year. The haircuts applied to longer-dated bills remain unchanged.

"Participants should make necessary funding arrangements to cover any shortfall to their margin requirements resulting from the increase in the U.S. Treasuries haircut," the clearing house said.

The Hong Kong Monetary Authority, the territory's de facto central bank, said it was monitoring developments relating to the U.S. debt ceiling carefully given the liquidity risks that could arise.

"The market generally assesses that the chance of a U.S. debt default is small," an HKMA spokeswoman said in an emailed response. "However, in the unlikely event a U.S. debt default takes place, there could be disruptions to financial market operations and shockwaves to the global financial market."