On 3 December 2021, FIA responded to proposals set out in the “Derivatives Holiday Trading” consultation paper issued by Hong Kong Exchanges and Clearing Limited (HKEX) in November 2021.
In the response, FIA sought clarification on a number of operational issues. FIA also provided other comments on the proposed trading, clearing and risk management arrangements, including:
- Liquidity concerns as HKEX suggests that members pre-fund USD when bank holidays in both U.S. and Hong Kong fall on the same day. Also, it is expected that margin calls issued to clients who are not Holiday Trading Exchange Participants (H Participants) on Holiday Trading Days (H Days) can only be met after the holidays. However, margin calls from HKEX have to be met on H Days by Holiday Trading Clearing Participants (H CPs). Therefore, there may be potential financing/funding issue arising from H CPs using their house account funds to fulfil end of day margin requirements for holiday trading clients during the holiday season (e.g. CNY holidays). The situation could be aggravated when market becomes more volatile.
- The need for a good uptake from the local brokers/clearing members, so that liquidity for the eligible contracts will not be compromised.
- Concerns around potential margining imbalances between H participants and non-H participants.
- Concerns around the default management process during H Days in case of member default, especially regarding the non-Holiday Trading Products within the portfolio of a defaulting participant.
- Concerns around the funding support model and potential contravention of client money rules
FIA welcomes the opportunity to work with HKEX to address its comments before the implementation of the proposals for holiday trading.
