Repositories
Central Clearing Requirements
Central Clearing Requirements Information Repository
Notes (Hong Kong-Securities and Futures Commission)
(Last Updated: 19 November 2020)
Authority: | Hong Kong-Securities and Futures Commission |
Jurisdiction: | Hong Kong |
Note 1 | Hong Kong
Exemptions from mandatory central clearing • End user exemption - end user exemptions are not applicable as end users are currently outside the scope of mandatory clearing, and accordingly, exemptions do not have to be specifically provided for in the rules. • Intra-group exemption - transactions between a prescribed person (see below the scope of a prescribed person) and its affiliate are exempted from clearing obligation provided that (i) the accounts of the prescribed person and the affiliate are consolidated in full by the holding company; (ii) the risk evaluation, measurement and control procedures applicable to the prescribed person and the affiliate are centrally overseen and managed within the group; and (iii) an exemption notice has been filed with the relevant regulator. • Pre-existing transactions: Mandatory clearing is applicable to transactions entered into on or after the prescribed day for the first calculation period in which a prescribed person's applicable position in OTC derivatives has reached the clearing threshold. Pre-existing transactions prior to the relevant prescribed day are not subject to mandatory clearing. • Jurisdiction-based exemption - transactions which are booked in overseas branches of an LC or a locally incorporated AI or AMB are exempted from clearing obligation provided an exemption notice has been filed with the relevant regulator and transactions in such exempt jurisdictions do not exceed a certain portion of the prescribed person’s total OTC derivatives portfolio, namely 5% in respect of each jurisdiction and 10% in respect of all exempt jurisdictions collectively. The primary intention is to address concerns about conflicting obligations that may apply to “small” branches of a prescribed person operating in closed markets. • Multilateral trade compression - transactions that are created or amended as a result of a multilateral trade compression cycle are exempted from clearing obligation provided that the original transactions were not themselves subject to clearing obligation, and where the trade compression is between more than two participants and carried out by a third party. • Substituted compliance - for a transaction subject to mandatory clearing in Hong Kong which are also subject to mandatory clearing under the laws of a comparable overseas jurisdiction, the parties may opt to clear in accordance with either Hong Kong requirements, or the requirements of the overseas jurisdiction. We have adopted a “stricter rule” approach for the substituted compliance framework and the initial list of comparable jurisdictions comprises of ODRG member jurisdictions. Further, under our substituted compliance framework, the transaction have to be cleared through a CCP designated under the SFO. Scope of a prescribed person: A prescribed person is an AI, AMB or LC. • Please see abbreviations and definitions" for explanation of terms used. Framework for mandatory clearing A prescribed person (see above) must centrally clear a specified OTC derivative transaction if: (i) it has reached the clearing threshold (currently set at US$ 20 billion); (ii) the transaction is entered into on or after the prescribed day for the calculation period in respect of which the prescribed person reached the clearing threshold for the first time (or the first time again after giving an exit notice); and (iii) its counterparty is another prescribed person who is required to clear its transactions or a financial services provider (see below). A financial services provider refers to a person that is designated by the SFC with the HKMA's consent and included in the gazetted list of financial services providers. The list includes persons that meet the following criteria: (i) persons that are clearing members of the largest IRS central counterparties in the US, Europe , Japan and Hong Kong as at 5 February 2016; and (ii) persons that belong to a group of companies appearing on the list of globally systemically important banks published by the Financial Stability Board in November 2015, and / or on the list of dealer groups which undertook to the OTC Derivatives Supervisors Group to work collaboratively with central counterparties, infrastructure providers and global supervisors to continue to make structural improvement to the global OTC derivatives markets. The empowering provisions in relation to mandatory clearing are set out in the new Part IIIA of the SFO, including new section 101C of the SFO, which provides that prescribed persons will be required to clear certain OTC derivative transactions through a designated central counterparty in accordance with the clearing rules. The new section 101N of the SFO further empowers SFC to make rules to provide for detailed clearing requirements. On 30 September 2015, HKMA and SFC consulted the market on the key proposals of the first phase of mandatory clearing (phase 1 clearing). Consultation conclusions were thereafter issued in February 2016, and subsequently, further consultation conclusions were issued in July 2016 (which concluded on the list of financial services providers). The first phase of mandatory clearing regime commenced on 1 September 2016 when the Clearing Rules came into effect. In tandem with the commencement of the first phase of mandatory clearing, the SFC has designated four CCPs for the purposes of mandatory clearing. In June 2017, SFC further published the list of prescribed persons who have reached the clearing threshold. In September 2018, the SFC published an updated list of prescribed persons who have reached the clearing threshold. |
Authority: | Hong Kong-Securities and Futures Commission |
Jurisdiction: | Hong Kong |
Note 2 | Hong Kong
Framework for mandatory clearing A prescribed person (see above) must centrally clear a specified OTC derivative transaction if: (i) it has reached the clearing threshold (currently set at US$ 20 billion); (ii) the transaction is entered into on or after the prescribed day for the calculation period in respect of which the prescribed person reached the clearing threshold for the first time (or the first time again after giving an exit notice); and (iii) its counterparty is another prescribed person who is required to clear its transactions or a financial services provider (see below). A financial services provider refers to a person that is designated by the SFC with the HKMA's consent and included in the gazetted list of financial services providers. The list includes persons that meet the following criteria: (i) persons that are clearing members of the largest IRS central counterparties in the US, Europe , Japan and Hong Kong as at 5 February 2016; and (ii) persons that belong to a group of companies appearing on the list of globally systemically important banks published by the Financial Stability Board in November 2015, and / or on the list of dealer groups which undertook to the OTC Derivatives Supervisors Group to work collaboratively with central counterparties, infrastructure providers and global supervisors to continue to make structural improvement to the global OTC derivatives markets. The empowering provisions in relation to mandatory clearing are set out in the new Part IIIA of the SFO, including new section 101C of the SFO, which provides that prescribed persons will be required to clear certain OTC derivative transactions through a designated central counterparty in accordance with the clearing rules. The new section 101N of the SFO further empowers SFC to make rules to provide for detailed clearing requirements. On 30 September 2015, HKMA and SFC consulted the market on the key proposals of the first phase of mandatory clearing (phase 1 clearing). Consultation conclusions were thereafter issued in February 2016, and subsequently, further consultation conclusions were issued in July 2016 (which concluded on the list of financial services providers). The first phase of mandatory clearing regime commenced on 1 September 2016 when the Clearing Rules came into effect. In tandem with the commencement of the first phase of mandatory clearing, the SFC has designated four CCPs for the purposes of mandatory clearing. In June 2017, SFC further published the list of prescribed persons who have reached the clearing threshold. In September 2018, the SFC published an updated list of prescribed persons who have reached the clearing threshold. References See link to the Consultation Paper issued in September 2015: http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/openFile?refNo=15CP4 See link to the consultation conclusions and further consultation paper issued in February 2016: http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/conclusion?refNo=15CP4 See link to joint consultation paper on enhancements to the OTC derivatives regulatory regime for Hong Kong to - (1) mandate the use of Unique Transacion Identifiers for the reporting obligation, (2) revise the list of designated jurisdictions for the masking relief of the reporting obligation, and (3) update the list of Financial Services Providers under the clearing obligation - April 2019 https://www.sfc.hk/web/EN/files/SOM/OTC/OTCD%20CP%20190426%20English.pdf See link to joint consultation conclusions paper on annual update to the list of Financial Dervices Providers under the clearing obligation for OTC derivative transactions - June 2019 https://www.sfc.hk/web/EN/files/SOM/OTC/June%202019%20Consultation%20Conclusions%20English%20FINAL%20190628.pdf See link to the list of designated CCPs for the purposes of mandatory clearing: http://www.sfc.hk/web/EN/regulatory-functions/market-infrastructure-and-trading/approved-or-authorized-entities/list-of-designated-central-counterparties-for-the-purposes-of-mandatory-clearing-under-part-iii-a-of-the-securities-and-futures-ordinance/ See link to the Clearing Rules: http://www.gld.gov.hk/egazette/pdf/20162005/es22016200528.pdf See link to the amendment to the Clearing Rules: https://www.gld.gov.hk/egazette/pdf/20182249/es220182249259.pdf See link to the list of designated CCPs for the purposes of mandatory clearing: http://www.sfc.hk/web/EN/regulatory-functions/market-infrastructure-and-trading/approved-or-authorized-entities/list-of-designated-central-counterparties-for-the-purposes-of-mandatory-clearing-under-part-iii-a-of-the-securities-and-futures-ordinance/ See link to the list of financial services providers: http://www.sfc.hk/web/EN/pdf/Gazette/G.N.%204776%20of%202016.pdf See link to the list of comparable jurisdictions for the purposes of substituted compliance: http://www.sfc.hk/web/EN/pdf/Gazette/G.N.%204777%20of%202016.pdf See link to the list of prescribed persons who have reached the clearing threshold: https://www.sfc.hk/web/EN/files/SOM/OTC/List%20of%20Institutions%20that%20have%20Reached%20the%20Clearing%20Threshold%20SFC%20to%20HKMA%20-%2014%20Sept%202018%20(EN).pdf |