Hong Kong’s G20 Regulations

posted Nov 24, 2013, 3:03 AM by David Larratt   [ updated Nov 24, 2013, 3:14 AM ]

On 28 June 2013, the Securities and Futures (Amendment) Bill 2013 (the "Bill") was published to enable Hong Kong to keep pace with global OTC derivatives regulatory reforms, which implement commitments made by G20 leaders at the 2009 Pittsburgh summit. This marks a sea change in how OTC derivatives business will be conducted in Hong Kong.

OTC derivatives are bilaterally traded derivatives contracts that are entered into by counterparties for many reasons, including hedging, risk management, speculation and investment.  Prior to the global financial crisis (GFC) of 2008, this market was comparatively lightly regulated, both in Hong Kong and elsewhere. Because of the private nature of these contracts, not much was known about how such contracts led to the concentration of risk in certain market participants.  The GFC also made it apparent how interconnected OTC derivatives market participants were, such that the fall of one major market participant (eg Lehman Brothers) could have serious knock-on consequences throughout the financial system. The GFC also made it apparent how much better prepared global leaders would need to be to deal with another financial crisis of this nature.

The G20 commitments require that all standardised OTC derivative contracts be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties (CCPs); that parties to OTC derivative contracts report key information to trade repositories; and that non-centrally cleared contracts be subject to higher capital and higher margin requirements.

(source: http://www.financeasia.com)

On 7th December 2013, foreign banks with HK licenses will start to report to the HKTR. Many of these banks are already registered CFTC Swap Dealers, so they will use the existing DTCC's Global Trade Repository to submit on their behalf.