Update | Hong Kong’s SFC chairman says no room for delay in OTC derivatives reform

There is no room for delay in the implementation of over-the-counter (OTC) derivatives reforms proposed by the Securities and Futures Commission and Hong Kong Monetary Authority, SFC Chairman Carlson Tong Ka-shing said on Monday.

 Speaking to the South China Morning Post after his keynote address at the joint Hong Kong Institute of Certified Public Accounts and  IFRS Conference, Tong said: “There is a plan and timetable in which we have clearly articulated how the reform will be implemented now and in the future.

 “We need to work with the Legislative Council’s schedule. The reform plan for OTC derivatives is not for Hong Kong to decide. There are international standards to be met. So we must follow the international timetable for implementation.  There is no room for delay. This is very important.”

 Hong Kong’s financial industry has  until the end October to respond to the SFC-HKMA joint consultation which will reshape how derivatives will be traded in the city.

 Under the proposed plan, financial institutions with trade positions exceeding US$20 billion will continuously remain on the regulator’s radar.

 Starting with interest rate derivatives denominated in Hong Kong dollars, US dollars, euro, Japanese yen and the pound, institutions must have their derivatives trades centrally cleared by Hong Kong Exchange and Clearing  or at a recognised overseas equivalent, replacing the longstanding model of bilateral trades between participants in the industry.

 The daily turnover of the OTC interest rate derivatives market in Hong Kong is US$27.9 billion, 10 per cent of the average daily US$274.6 billion in forex transactions. The global daily turnover of the OTC derivatives market is US$1.4 trillion, according to the HKMA’s last survey conducted with the Bank of International Settlements at the end of 2013.