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Financials

UPDATE 1-Hong Kong regulator proposes to ease trade in listed derivatives

* Watchdog eyes lifting cap on ‘excess’ position limits of brokers

* Plans new excess position limits for index arbitrage activities

* Aims to lift statutory limit for stock option contracts (Adds detail, context, quote)

HONG KONG, Sept 20 (Reuters) - Hong Kong’s securities regulator began consultations with market participants on Tuesday over plans to ease curbs on trading listed derivatives, in an effort to boost the futures and options market.

In a statement, the Securities and Futures Commission (SFC) said it proposed lifting the existing cap on brokers’ so-called ‘excess’ position limits - positions in equity option and futures contracts not being used to directly hedge underlying share holdings.

The SFC has also proposed establishing new excess position limits for index arbitrage activities, asset managers and market makers of exchange-traded funds, allowing such players to more efficiently hedge their risks.

The SFC has also proposed trebling to 150,000 contracts the statutory limit for stock option contracts.

“The proposed enhancements address market participants’ business needs and encourage them to conduct more of their derivative activities on exchange markets,” SFC Chief Executive Ashley Alder said.

“By improving market efficiency and enhancing liquidity, this will help to promote Hong Kong as a risk management centre.”

Market participants have until November 21 to provide feedback.

The plan follows a similar proposal by the Hong Kong Exchanges and Clearing Ltd, which has been lobbying the SFC to free up derivatives trading.

Following the financial crisis, regulators globally have been pushing to boost transparency and cut risks in the derivatives market, largely blamed for the collapse of Lehman Brothers and bringing insurance giant AIG to its knees, by pushing more contracts onto exchanges. (Reporting by Michelle Price; Editing by Simon Cameron-Moore and Clarence Fernandez)

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