On 5 February 2016, the Hong Kong Securities and Futures Commission (“SFC”) and Hong Kong Monetary Authority (“HKMA”) published their joint consultation conclusions on proposals to introduce mandatory clearing and expand mandatory trade reporting for the second stage of the OTC derivatives regulatory regime. FIA had previously responded to the earlier regulatory consultation on mandatory clearing.
Phase 1 clearing will be deferred from 1 July 2016 to 1 September 2016. This was delayed, as an added measure, in response to a number of concerns raised by industry (including by FIA) whether a sufficient number of central counterparties will be designated by the time phase 1 clearing is implemented.
The regulators have also taken into account many of the suggestions and concerns raised by industry during the consulation process when finalising their proposals including:
- in light of concerns about difficulties in establishing if a counterparty is a “financial services provider” when determining whether a trade is a dealer-to-dealer transaction thus subject to the clearing obligations, the regulators have introduced a list of specific “financial services providers” for further consultation;
- the proposal to apply two thresholds for prescribed persons that are incorporated overseas – one for their positions globally and the other for positions booked in Hong Kong – has been amended, so that only their positions booked in Hong Kong will be looked at;
- in addition to deliverable FX forwards, deliverable FX swaps will also be excluded from the clearing threshold calculation;
- an exit mechanism from the clearing obligation will be provided; and
- an additional exemption will be available for certain transactions resulting from multilateral trade compression.
The regulators also confirmed that the commencement of phase 2 trade reporting will be deferred from 1 January 2017 to 1 July 2017.
Central counterparties who are authorised to provide automated trading services will be subject to mandatory reporting in its current form (phase 1 reporting) from 1 September 2016 to align with the commencement of phase 1 mandatory clearing.
Legislation has been gazetted to implement the above proposals and it is expected to be tabled at Legislative Council on 17 February 2016.
