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June 27, 2018

HKMA and SFC issued conclusions to a joint consultation on further enhancements to the over-the-counter (OTC) derivatives regulatory regime in Hong Kong. The enhancements include mandating the use of Legal Entity Identifiers for the reporting obligation, expanding the clearing obligation, adopting a trading determination process for introducing a platform trading obligation.

The joint consultation was issued in March 2018 and comments were due by April 27, 2018. HKMA and SFC received comments from 20 respondent entities, out of which comments from 16 entities have been made available. Based on market feedback, the mandatory use of Legal Entity Identifiers (LEIs) in trade reporting will only apply to the identification of entities that are on a reporting entity’s side of a transaction. This requirement will apply to the reporting of new transactions and daily valuation information beginning April 01, 2019. Reporting entities should continue to identify their counterparties in transaction reports in accordance with a waterfall of identifiers specified in the Supplementary Reporting Instructions for OTC Derivative Transactions.

Meanwhile, the reporting entities are expected to establish a process to request LEIs from their clients. Regulators will maintain close dialog with reporting entities and keep in view the international development to assess the need for further requirements in this area. HKMA and SFC will proceed with their proposals for Phase 2 Clearing with some fine tuning. The clearing obligation will be expanded to include specified standardized interest rate swaps denominated in Australian Dollars and the list of Financial Services Providers will be revised. The regulators have also adopted the trading determination process proposed in the joint consultation paper and are currently using the process to determine for which products it may be appropriate for Hong Kong to introduce a platform trading obligation. 

Effective Date: April 01, 2019

Keywords: Asia Pacific, Hong Kong, Securities, OTC Derivatives, Reporting, LEI, Clearing Obligation, SFC, HKMA

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