Hong Kong Regulator Selects Markit for Compliance - Just in Time for New Rules

Markit, a financial information services firm will deploy its compliance solution for financial services firms in Asia, as new rules come in practise from the first of January, 2014.

Hong Kong’s main financial regulator, the Hong Kong’s Securities and Futures Commission (SFC), will implement new electronic trading rules thus affecting the way brokers manage their compliance functions.

The new rules will come in to practise from the new year. Under the guidelines Hong Kong-licensed brokers will be required to attest that their electronic trading systems are properly supervised, tested and risk-managed. The rules also require customers to acknowledge that they understand the algorithms and other technologies used by their brokers. The new rules highlight the SFC’s commitment to ensuring both participants and users are informed of the way trades are executed.

Hong Kong has seen an influx of irregularities in the equity and derivatives market. The Hong Kong Mercantile Exchange was victim to ill practises and consequently was shut down by the regulator. Furthermore, the SFC has issued several fines against firms and individuals who were using unfair practises e.g. insider trading and general breach of SFC rules.

SFC has fined A One Investment Company Limited (A One), a local Hong Kong broker, HK$1.2 million for failing to control the sale of securities and for the misuse of Client Money . China Securities was fined in August 2013 for HK$1.3 million for breaches in order record keeping, employment of unlicensed dealing staff and supervision of its dealing functions between 2007 and 2011.

Firms (broker dealers, fund managers and banks) will use Markit’s Counterparty Manager technology to meet the new requirements set by the financial watchdog, and will aid financial institutions exchange of the information required under the new rules (SFC Paragraph 18 and Schedule 7).

Kevin Gould, president of Markit and head of Markit Asia-Pacific, spoke about the product deployment in a statement, saying: “Our solution leverages our existing Counterparty Manager technology to help market participants in Asia-Pacific adapt to the new regulatory environment. This technology allows market participants to use a single platform and API for multiple regulatory requirements across regions, lowering costs and operational headaches. Last year, we used Counterparty Manager to deliver the ISDA Amend platform, which facilitates compliance with Dodd-Frank, and recently extended the service to help businesses comply with Emir.”

Under the new rules firms will be required to complete questionnaires ensuring the regulators have satisfactory information. Markit’s solution will offer an electronic format of the questionnaire designed by a number of industry associations (AIMA, ASIFMA, ATF, FPL, HKIFA ) to assist the buyside and brokers in exchanging the required information.

George H. Molina, senior vice president and director of Asian trading at Franklin Templeton Investments, a user of the new technology, commented in the press release: “For several months now the Asia TraderForum buyside industry group has been seeking an efficient solution to facilitate compliance with the SFC’s new electronic trading rules. We are pleased the industry has selected a single platform to assist us in managing the process.”

Industry groups were concerned about the new rules when the guidelines were released by the SFC earlier this year, where in essence sell-side firms need to vet Buy-Side firms and vice versa, under the new ‘paper trail’ the process will be managed in line with other regulators.