HONG KONG, July 18 Hong Kong moved one step
closer to implementing the G20 post-crisis reform agenda on
Friday with the publication of a long-awaited consultation on
the treatment of derivatives trades.
The paper, jointly-issued by the Hong Kong Monetary
Authority (HKMA), the city's de facto central bank, and the
Securities and Futures Commission (SFC), will help establish
detailed rules on how information relating to
privately-negotiated derivatives trades are reported to the
The rules form part of Hong Kong's broader efforts to comply
with the post-crisis G20 reform agenda, which aims to reduce the
risk of trading over-the-counter derivatives by making
transactions in this market transparent to watchdogs.
Prior to the crisis, banks like Lehman Brothers were able to
accumulate huge piles of risk deriving from these instruments
that lay hidden from the gaze of regulators.
Hong Kong is Asia's third-largest OTC derivatives trading
hub after Singapore and Australia, with the vast majority of
trades relating to foreign exchange, according to research
published by consultancy Celent in conjunction with bank trade
group, the International Swaps and Derivatives Association April
Hong Kong this year launched a new legal framework that
introduces mandatory reporting, clearing, trading, and
record-keeping obligations for OTC derivatives through
amendments to the Securities and Futures Ordinance, but the
details have yet to be drawn up.
Clearing helps mitigate the counterparty risk involved in
trading OTC derivatives by passing the trade through a
third-party which holds cash as security against either party
The month-long consultation is one of several the HKMA and
SFC expect to issue on the new legislation which focuses
specifically on the trade reporting and record-keeping aspect of
the new regime.
It aims to establish which types of trades will be reported,
which firms will be required to report, how quickly firms ought
to report, and the content of reports.
Trade reporting has become an issue of intense debate,
following a bungled implementation of G20 trade reporting rules
in the United States and Europe, which saw regulators
overwhelmed with confusing data. Further subsidiary legislation
will be drawn up once the regulators have received feedback from
(Reporting by Michelle Price; Editing by Denny Thomas)