Developing a Trade Repository for OTC Derivatives Trades in Hong Kong

The Hong Kong Monetary Authority (HKMA) announced today (Friday) the development of a local trade repository (TR) for over-the-counter (OTC) derivatives trades in Hong Kong.

Arising from the global financial crisis in 2008, concerted effort has been made by the international community to improve the transparency and reduce the counterparty risks in the OTC derivatives markets. Specifically the G20 has recommended that all standardised OTC derivatives contracts should be cleared through central counterparty clearing facilities (CCPs) and all OTC derivatives contracts should be reported to TRs by the end of 2012. As an international financial centre, Hong Kong will need to comply with these international standards.

The TR is a centralised registry that maintains an electronic database of records of OTC derivatives transactions. By providing OTC derivatives transactions information to regulatory authorities, the TR plays a vital role in supporting authorities in carrying out their market surveillance responsibilities, which will help maintain stability of the financial systems in Hong Kong. It also helps increase transparency in the market, promote standardisation and provides a level of consistency in the quality and availability of transaction data.

Scheduled for launch in 2012, the TR in Hong Kong will be provided as a new service under the Central Moneymarkets Unit of the HKMA. A link will be developed between the TR and the CCP for OTC derivatives to be launched by Hong Kong Exchanges and Clearing Ltd (HKEx) to allow eligible transactions to be passed to the CCP for central clearing. The HKMA will work in concert with the Government and the Securities and Futures Commission to build a regulatory regime for OTC derivatives markets. This would cover the reporting of OTC derivatives transactions, particularly those which are relevant to the Hong Kong market, to the TR and the clearing of standardised OTC derivatives transactions through an authorised CCP.

At the initial stage, the reporting and clearing requirement will be applied to interest rate swaps and non-deliverable forwards. Consideration will be given to extending the requirement to other appropriate OTC derivatives asset classes after the initial roll out, having regard to local and overseas market developments including any further guidance from international regulatory bodies. The industry will be consulted on the relevant supervisory requirements by the third quarter of 2011.

Mr Eddie Yue, Deputy Chief Executive of the HKMA, said, "The lack of market transparency and robust clearing and settlement infrastructure in OTC derivatives markets was highlighted as a source of instability in the recent financial crisis. The HKMA supports HKEx's initiative to develop the CCP for OTC derivatives and considers it both timely and necessary for Hong Kong to develop a local TR. The local TR and CCP are crucial for enhancing the robustness and transparency of local OTC derivatives markets, bringing Hong Kong's financial market infrastructure in line with global standards."

For media enquiries, please contact:
Rhonda Lam, Communications Chief, at 2878 1480 or
Yokee Wong, Manager (Communications), at 2878 1213

Hong Kong Monetary Authority
10 December 2010

Deputy Chief Executive of the Hong Kong Monetary Authority Eddie Yue (middle), Executive Director of the Securities and Futures Commission Keith Lui (third from right) and Chief Executive of Hong Kong Exchanges and Clearing Limited Charles Li (third from left) attend a briefing on the latest developments of the establishment of a trade repository and a central counterparty for over-the-counter derivatives transactions in Hong Kong.