New features in the Webb-site CCASS Analysis System (WCAS) allow investors and regulators to see the largest daily CCASS movements across the market and the history of large moves in each stock and by each broker. Movements of large blocks into CCASS or between brokers without a corresponding transaction often indicate a pledging of shares for loans, which are not disclosed due to inadequate law and Listing Rules.

Webb-site upgrades CCASS Analysis, spotlights share pledges
19 December 2017

Webb-site is pleased to announce today's launch of new features in our extremely popular Webb-site CCASS Analysis System (WCAS) which tracks the movements of custody positions in the Central Clearing and Automated Settlement System (CCASS) run by Hong Kong Securities Clearing Co Ltd (HKSCC). One of our aims in doing so is to increase the transparency and scrutiny of probable share pledges by controlling shareholders in the face of an inadequate law and Listing Rules on disclosures.


Practically all trades on the local monopoly Stock Exchange of Hong Kong Ltd (SEHK) are cleared through CCASS, so to sell shares, they must be deposited into CCASS. All the shares in CCASS are held on share registers in the name of HKSCC Nominees Ltd (HKSCCN), making it the only registered shareholder for the vast majority of the free float of shares in HK. SEHK, HKSCC and HKSCCN are 100% subsidiaries of Hong Kong Exchanges and Clearing Ltd (0388). The Government has exempted all of them from the Competition Ordinance.

Since 26-Jun-2007, we've been collecting data which show the daily movements in CCASS in each stock. Some of these movements arise from settlement of net sales or purchases two days earlier by clients of each CCASS Participant - a bank, broker or custodian, or by individual named Investor Participants (IPs). Not all movements are the result of transactions though. One reason why large blocks of shares can move between participants is if the beneficial owner of those shares has pledged them as collateral for a loan.

In the absence of a loan, an intention to borrow, or an intention to sell, there are few good reasons for a controlling shareholder to incur the risks of leaving large blocks of shares in the account of a bank or broker. Doing so makes it harder to vote the shares (an extra layer of admin), incurs CCASS "scrip fees" on the first book close after the deposit at the rate of $1.50 per board lot of shares, and incurs the risk of broker default. However, CCASS charges an extortionate $3.50 per board lot to remove shares from the system entirely, so it can make sense for a formerly-pledged block of shares to be left inside CCASS even after the loan has been repaid.

Moving shares between CCASS Participants results in a further round of scrip fees at the next book closure date if the shares are still in their new home, so investors should generally assume, when they see a large shareholding moved between participants or into CCASS without a corresponding transaction, that those shares are or may soon be pledged and/or sold. For smaller shareholding movements without corresponding market volume, those can also relate to hedge funds moving stock between "prime brokers".

We wish that we could be more certain about the reasons for each large movement, but under HK's law on disclosures of interests (the Securities and Futures Ordinance), "qualified lenders", including licensed banks, stockbrokers and insurers, are exempt from disclosing "security interests" (pledges) of shares. Listing rules (Rule 10.07) only require disclosure of pledges by controlling shareholders in the first 12 months after listing. Both of these things should change - the exemption should be repealed from the legislation so that security interests of 5% or more are disclosed, and controlling shareholders, who are often also directors, should have to disclose their pledges at all times. In the meantime, the best we can do for investors is to enhance our WCAS features so that you can make your own guesses about share pledges from the movements.

We should note that If a controlling shareholding is held outside of CCASS, that doesn't mean it has not been pledged. A broker or bank could still hold the certificates with an undated, signed transfer deed, as collateral for a loan. It just makes it less likely, because those shares cannot so easily be sold in the market. It takes time to deposit them into CCASS and for HKSCC to register them in the name of HKSCCN.

New features

So without further ado, let's describe the new features of WCAS.

We have run calculations on all our data back to 26-Jun-2007, which show the daily "Big changes" - movements over 0.25% of the outstanding shares in all listed stocks. From now on, these calculations will be run overnight, so today, for example, you can see the Big Changes for 18-Dec-2017, and you can pick any earlier date. Click on the issue name, and you can see all the CCASS movements in that stock for the day. Click on the participant's name, and you can see the history of that participant's holding in the stock, including an optional graph. For example, today's biggest movement was a 28.93% block moved by the controller of GR Properties Ltd (0108) from HSBC to CCBI.

At the individual stock level, click on "Big changes" to see the history of all movements exceeding 0.25% in that stock. For example, we can see the history for GR Properties here. You can click the column-headings to sort by the absolute size (positive or negative) of the change, or by date, or by CCASS Participant and date. Click on a participant name to see the history of its holding in that stock.

At the individual participant level, click on "Big changes" to see movements exceeding 5% of outstanding shares in all companies over time. For example, the big movements for CCB International Securities Ltd are here, and Kingston Securities Ltd are here. Again, you can sort by size, by date or by issue name and date. For more examples, consider brokers with large holdings in what we call the "Enigma Network" such as Astrum Capital Management Ltd, Black Marble Securities Ltd, China Demeter Securities Ltd, China Gather Wealth Financial Co Ltd, China Jianxin Financial Services Ltd, CSL Securities Ltd or Jun Yang Securities Co Ltd, to name just a few of them. This feature should also be useful for regulators!

©, 2017

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