FIA urges Hong Kong to coordinate clearing rules
On Nov. 5, FIA submitted jointly with two other trade associations, the International Swaps and Derivatives Association and the Asia Securities Industry & Financial Markets a written response to the consultation published by the Hong Kong Monetary Authority and the Securities and Futures Commission regarding the introduction of mandatory clearing of OTC derivatives, which is expected in mid-2016, and the expansion of the existing trade reporting regime.
The three associations urged the Hong Kong authorities to take into account the timeline set by European regulators for mandatory clearing in Europe as they determine their own timeline for introducing mandatory clearing in Hong Kong. For example, Europe will implement the clearing obligations in phases based on categories of counterparties, and the three associations recommended that Hong Kong adjust its timeline so that the compliance deadlines are in line with each other.
The associations also reiterated concerns about the current treatment of segregated margin under the Basel III framework and the impact this will have on the availability of client clearing services. The associations urged the HKMA and SFC to consider these issues and to monitor developments prior to expanding the scope of mandatory clearing obligations beyond dealer-to-dealer clearing.
The three associations reiterated these concerns in December in a response to a different consultation by the Securities and Futures Commission. The SFC asked for feedback on amendments to the guidelines for the regulation of automated trading services to accommodate the introduction of mandatory clearing for OTC derivatives and to align the guidelines with international standards.
Under Hong Kong's rules for automated trading services, exchanges and clearinghouses are required to apply for authorization as ATS providers. Originally this covered securities and futures trading and clearing, but in 2014 this was extended to include services for the trading and clearing of OTC derivatives.
The three associations encouraged the SFC to work with foreign clearinghouses so that they are recognized as "designated clearinghouses" in Hong Kong, making it possible for market participants to comply with the mandatory clearing obligations by using these clearinghouses. These foreign clearinghouses include LCH.Clearnet, CME Clearing Europe, Eurex Clearing, Japan Securities Clearing Corp., and Nasdaq OMX Clearing.
The response also urged the SFC to provide a "transitional period" to minimize disruption and to provide market participants with sufficient time to make any necessary applications and obtain the necessary licenses, registrations or authorizations under the amended regime.
