Webb-site.com launches CCASS Analysis
19 November 2008
Webb-site.com is pleased to announce a new free service for our readers - an analysis of the holdings in the Central Clearing and Automated Settlement System (CCASS), which is Hong Kong's book-entry depository system for securities traded on the stock exchange. To get started right away, go to our home page and key in a stock code in the box on its right, then following the CCASS link.
Background
It used to be possible to see the holdings of stockbrokers, banks, custodians and individuals by inspecting the share registers of HK-listed companies, but after the advent of CCASS in 1993, most publicly-held shares (outside of controlling shareholders and employees) moved into the CCASS system and were registered in the name of HKSCC Nominees Limited, in a system known as "immobilisation". Shares have to be deposited in CCASS in order to settle trades on the exchange. CCASS is operated by Hong Kong Securities Clearing Co Ltd (HKSCC), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Ltd (HKEx, 0388).
Only 15 years late(r), on 28-Apr-08, HKEx announced that to improve transparency, the CCASS holding data would now be available online. We commend this step. The HKEx site shows, on any date in a rolling 1-year period, the holdings in each stock. The data are deleted after 1 year.
In order to preserve the data for future researchers and to add our analytical overlay, we have been capturing the data, starting from 26-Jun-07, so we now have a 17-month archive and growing. Each day, we download the data (about 250,000 holdings), compare them with previous holdings in our database, and record the changes, including removal of delisted stocks and holdings which have vanished (gone to zero). About 10-25% of the holdings change on any day, depending on the activity level in the market. This allows us to add the following analysis:
- Each day for each stock, we show a list of holdings and the date on which they last changed. You can then sort by date to see which are the most recently-changed holdings.
- For each holder in each stock, a 1-page history can be generated, showing the day-to-day changes in the holder's position in that stock. This saves you having to look at one page after another just to compare holdings from day to day.
- We can generate a list of stockholdings for each holder, on any given date, showing the percentage holding in each company, based on the latest known number of issued shares as published from time to time.
Know your broker
Our CCASS Analysis Service will allow readers to see what stocks certain brokers specialise in, and if you have a margin account, what the pool of collateral might include. You've heard about "know your client", but this improves your ability to "know your broker". This collateral pool is often pledged to lenders, and if its value falls suddenly then it can, in extreme cases, trigger a brokerage collapse.
Trend following
By looking at recent trends, you can have some idea, up to 2 days before the report (since transactions are usually settled 2 days after the trade), whether a broker was selling or buying a line of stock. For institutional brokers, it is harder to tell, as most of their clients hold stock through major custodians. If custodian holdings are increasing overall, then institutions are probably net buyers, in which case retail and other investors are net sellers.
Risks
Our analysis process isn't perfect. One thing we don't bother with is trying to track the holdings during "parallel trading" on different stock codes. Parallel trading (for overseas readers who may not be familiar with it) is an archaic practice which dates back to the B.C. era (Before CCASS) and was due to be abolished on 3-Nov-08, but has been delayed until "the second half" of 2009. So if a stock is in the middle of a split or consolidation then you may see strange results, and no holding changes for several days. Also, the numbers of shares outstanding are not updated daily (the Listing Rules don't require it), so sometimes the percentages will be wrong. Finally, we cannot rule out the possibility of errors in our coding or data storage systems. Webb-site.com and its associates do not accept any liability for any use of the data or the analysis we present.
Also, note that HKEx does not disclose the CCASS holdings in derivative warrants, callable bull/bear certificates or any other instrument other than shares and warrants which are issued by listed companies and admitted to CCASS.
Holdings, but not ownership
Beware that you cannot tell from a holding by a bank, broker or custodian whether it is beneficially owned by them or held for one or more clients. The CCASS holding data only tell you the immediate holders of share interests, not the beneficial owners. The only exception to this is for those few Investor Participants (IPs) who have consented to their CCASS shareholdings being disclosed by HKEx. Most IPs, like the clients of banks and brokers, prefer to remain anonymous, as is their right. The reports show their holdings in aggregate.
Non-dealings and pledges
Bear in mind that CCASS holdings can change for reasons other than market transactions. Such reason include rights issue subscriptions, warrant exercises, stock splits, consolidations and bonus issues, or simply moving accounts between custodians and/or brokers. Also, the sudden appearance of a large block of stock (particularly one far greater than the relevant day's volume) may be indicative of a share pledge. There is no certainty, but you can at least factor in the risk to your investment decision. Brokers, Banks and Insurers are currently exempt from having to disclose "security interests" in shares pledged to them, which they would otherwise have to do under the Securities and Futures Ordinance, and controlling shareholders do not have to disclose when they have pledged their holdings either.
Registrars, still offline
It would be relatively simple for the registrars to publish on their web sites (in a machine-readable form) the share registers and the numbers of outstanding shares updated immediately for allotments and cancellations. This would also help substantial shareholders to know what the denominator is for calculating whether changes in their holdings are discloseable (when they move through a 1% boundary at 5% or higher). The data could also be submitted by the registrars daily to HKEx. So far HKEx has not seen fit to require the registrars to do this. The top 3 registrars have 99.7% of the market - they are Tricor (53.2% of listed companies), Computershare (43.1%) and Union Registrars (3.3%). Three other registrars have 4 listed clients between them. None of the registrars provides online inspection of share registers. They should.
The legislation vacuum
Incidentally, since 1998 the Government has been talking about introducing scripless (electronic) registration of shares, which would remove the need for a vault full of paper and potentially would give CCASS participants legal title to their shares (if the CCASS register was recognised as a branch register), with all the rights that would go with it. But this is another piece of proposed legislation that has vanished from the radar, along with legislation for statutory backing of the Listing Rules which was supposed to have been tabled in 2004-5. Ministers find it easier to talk about building an Islamic finance hub and attracting Russian oligarchs to list here rather than the complex but vital work of building our legal infrastructure.
© Webb-site.com, 2008
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