The financial press is reporting? that Hong Kong’s financial regulators expect to have new rules governing the trade of over-the-counter derivatives in the city in place as early as January 2013, as part of Hong Kong’s commitment to implement an earlier agreement by Group of 20 Nations leaders to regulate the OTC derivatives market.
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The G-20 nations released a communique in September 2009 calling for all standardized OTC derivative contracts to be traded on exchanges or electronic trading platforms where appropriate, and cleared through central counterparties by the end of 2012 at the latest. It also called for OTC derivative contracts to be reported to trade repositories, Hong Kong’s Securities and Futures Commission said in a statement last year.
The Hong Kong Monetary Authority and the SFC said at a joint news briefing Monday that they are consulting the market on the matter.
HKMA Executive Director Edmond Lau said meeting the January 2013 timeline will depend on the legislative process and international discussions of some of the key aspects of the reform.
Under a proposal released last year, Hong Kong Exchanges & Clearing Ltd. (0388.HK) will create a clearing house for derivatives traded on Hong Kong’s over-the-counter market.
Lau said the HKMA will set up a trade repository to serve as a central registry and provide an electronic database for transaction records for the local OTC derivatives market.
He said that initially, the new reporting and clearing requirements will be applied to interest rate swaps and non-deliverable forwards, but will eventually be extended to other products, such as equity derivatives.
Hong Kong’s OTC derivatives market is small compared with other major markets, Lau said. The gross notional amount of the city’s OTC derivatives market totaled US$16.6 trillion in 2009, among which interest rate swaps contracts accounted for US$2.4 trillion and non-deliverable forwards US$2.8 trillion, Lau added.
