SFC Set to Adopt BCBS-IOSCO Rules on Non-Centrally Cleared OTC Derivatives
- The Hong Kong regulator issued a consultation paper today and will give respondents two months to reply
The Securities and Futures Commission (SFC), a Hong Kong regulator, released a consultation paper this Tuesday that proposes Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term over non-centrally cleared over-the-counter (OTC) derivative transactions.
If implemented, the proposed legislative changes will see the SFC implementing the OTC derivatives rules as set out by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (BCBS-IOSCO).
These rules were laid out in March of 2015 when BCBS-IOSCO released a report, Margin requirements for non-centrally cleared derivatives. Full of near-impenetrable legalistic language, the report’s name is perhaps the only thing that provides a clear idea of what its purpose actually is.
Copycat
The consultation paper issued by the SFC today follows the BCBS-IOSCO paper’s guidelines almost exactly. The Hong Kong regulator has given firms two months to respond to its suggestions, after which it will start formulating new regulation.
The rules that the consultation paper sets out, in essence, require firms to exchange margins when certain thresholds are met regarding the total value of a firm’s outstanding non-cleared OTC derivatives positions.
A firm must use ‘variation margin’ on a regular basis in order to reflect changes in the value of its outstanding contracts. Firms may also have to use ‘initial margin’ to cover exposure to a defaulting counterparty.
Unfortunately for the bulk of firms, there is not much wiggle room with the regulation as it applies to nearly all OTC non-centrally cleared derivatives.
There are some exceptions which many readers here at Finance Magnates will be pleased about. Physically settled FX futures and Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term will be exempt as they are seen as less risky than other non-centrally cleared OTC derivatives.
The Securities and Futures Commission (SFC), a Hong Kong regulator, released a consultation paper this Tuesday that proposes Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term over non-centrally cleared over-the-counter (OTC) derivative transactions.
If implemented, the proposed legislative changes will see the SFC implementing the OTC derivatives rules as set out by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (BCBS-IOSCO).
These rules were laid out in March of 2015 when BCBS-IOSCO released a report, Margin requirements for non-centrally cleared derivatives. Full of near-impenetrable legalistic language, the report’s name is perhaps the only thing that provides a clear idea of what its purpose actually is.
Copycat
The consultation paper issued by the SFC today follows the BCBS-IOSCO paper’s guidelines almost exactly. The Hong Kong regulator has given firms two months to respond to its suggestions, after which it will start formulating new regulation.
The rules that the consultation paper sets out, in essence, require firms to exchange margins when certain thresholds are met regarding the total value of a firm’s outstanding non-cleared OTC derivatives positions.
A firm must use ‘variation margin’ on a regular basis in order to reflect changes in the value of its outstanding contracts. Firms may also have to use ‘initial margin’ to cover exposure to a defaulting counterparty.
Unfortunately for the bulk of firms, there is not much wiggle room with the regulation as it applies to nearly all OTC non-centrally cleared derivatives.
There are some exceptions which many readers here at Finance Magnates will be pleased about. Physically settled FX futures and Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term will be exempt as they are seen as less risky than other non-centrally cleared OTC derivatives.