Regulators release conclusions on further proposals for regulating OTC derivatives market

The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) jointly published today their conclusions on a joint supplemental consultation regarding the proposed scope of activities to be regulated under the new over-the-counter (OTC) derivatives regime, and regulatory oversight of systemically important participants (Note 1).

The conclusions paper summarises the comments received and the responses of the HKMA and the SFC to these comments. It also notes that further work is necessary and is being conducted to implement the new OTC derivatives regime.

In general, respondents supported the proposals. They recognised the need to extend Hong Kong’s licensing regime so that it also covers intermediaries that conduct OTC derivatives activities. They also agreed that the HKMA and the SFC should have effective regulatory powers in respect of systemically important participants given the potential risk they may pose to the financial stability of our markets.

Respondents welcomed the proposal to introduce transitional arrangements to implement the extended licensing regime. There were some concerns that the proposed duration of these arrangements may not be sufficient, and that some of the preconditions to benefit from them may not be sufficiently clear. The transitional arrangements have been fine tuned to address these concerns, and to facilitate those who have been engaging in OTC derivatives activities to move into the new licensing regime with minimum disruption to their existing businesses.

The revised proposals have been incorporated into the relevant Amendment Bill that sets out the legislative amendments for the proposed OTC derivatives regime. The Bill was introduced into the Legislative Council in July 2013.

Separately, the HKMA and the SFC are working on the detailed requirements under the new regime, which will be set out in subsidiary legislation, and plan to conduct a public consultation on these later this year.

Notes:

1.In 2011 and 2012, the HKMA and SFC consulted the market on a proposed regulatory regime for the OTC derivatives market. The Joint Supplemental Consultation, issued in July 2012, was a follow-up to the earlier consultation and set out in more detail the scope of dealing, advising and other activities to be regulated under the new regime. The consultation also set out proposals for regulating the activities of persons whose positions are so large as to raise concerns about systemic risk (i.e., systemically important participants).

2.For enquiries, please contact –

• HKMA  : Loren Tam  at 2878 1802 or Natalie Wu at 2878 8246
• SFC : Jonathan Li at 2231 1808 or Ernest Kong at 2231 1335