Hong Kong Edges Closer to Mandatory Reporting of OTC Derivatives

Hong Kong’s ongoing developments on reforming its regulatory landscape to adopt recommendations put forward by world leaders at the 2009 G20 Summit, stepped-forward, as the country’s main watchdogs that regulate banking and financial institutions announced a consultation on understanding the requirements for the proposed changes

The Hong Kong Monetary Authority (HKMA) and the Securities Futures Commission’s (SFC) joint consultation on mandatory reporting for OTC derivatives aims to strengthen the trading environment thus creating a transparent and efficient system. The regulators have been making a number of changes and amendments to existing rulings in order to implement the G20 guidelines, a practise other developed nations are taking.

The derivatives regulator, SFC, introduced the Ordinance 2014 in April this year. The Amendment Ordinance was the major guideline set in law for regulatory measures. The Ordinance has a number of principals which enable the market to transform its existing framework to a centrally cleared offering.

The principals include; the introduction of a licensing regime for dealing in and advising on OTC derivatives and providing clearing services for OTC derivatives. The clarification and extension of insolvency protections for OTC derivatives cleared on a recognized Clearing House . The introduction of ‘technical improvements' including (i) requiring certain notifications to be filed electronically; (ii) giving a power to the court to make disgorgement orders for market misconduct offences; (iii) making amendments to the Organized and Serious Crimes Ordinance concerning orders for market misconduct offences.

The country's main Stock Exchange , Hong Kong Exchange Clearing, introduced OTC Clear in November 2013, for the mandatory clearing of OTC derivatives. A month later, in December 2013, the first over-the-counter derivatives transaction was executed on OTC Clear.

The consultation period will end on 18 August 2014, the regulator has requested interested parties to submit their comments to the HKMA or the SFC on or before the deadline.