The global financial crisis in 2008 triggered a global movement to improve transparency and reduce counterparty risks in the over-the-counter (OTC) derivatives markets, resulting in reforms to the OTC derivatives markets on various fronts. The reform measures adopted by the international regulatory community include requiring all OTC derivatives transactions be reported to trade repositories (TRs) and all standardised OTC derivatives transactions be cleared at central counterparty (CCP) clearing facilities.
TR is a centralised registry that maintains an electronic database of records of OTC derivatives transactions. By collecting and 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. It also helps increase transparency in the market, promotes standardisation and provides a level of consistency in the quality and availability of transaction data.
The HKMA, together with the Government and the Securities and Futures Commission, built a regulatory regime for the OTC derivatives markets (OTC Regulatory Regime) under the Securities and Futures Ordinance (SFO), including requirements for mandatory reporting to the Trade Repository of the HKMA (HKTR) and mandatory clearing at designated CCPs.
In August 2013, the HKMA introduced interim reporting requirements to require licensed banks to report OTC derivatives transactions with other licensed banks to the HKTR. The Legislative Council enacted the Securities and Futures (Amendment) Ordinance 2014 (Amendment Ordinance) on 26 March 2014. The Amendment Ordinance serves as a regulatory framework for the OTC derivatives market in Hong Kong. A set of Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules (the “Reporting Rules”) came into effect in two phases. The first phase of reporting commenced on 10 July 2015, introducing mandatory reporting in respect of certain interest rate swaps (IRS) and non-deliverable forwards. The interim reporting requirements was ceased upon the commencement of the Reporting Rules. The expanded mandatory reporting, or second phase of reporting, was implemented on 1 July 2017 and covered OTC derivatives under all five key asset classes (i.e. interest rates, foreign exchange, equities, credit and commodities).