HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions. The module sets out minimum standards that HKMA expects authorized institutions to adopt in relation to margin and other risk mitigation techniques for non-centrally cleared OTC derivatives transactions. The consultation is open until June 25, 2020.
Margin standards for non-centrally cleared OTC derivatives are designed to reduce counterparty credit risk and limit contagion by ensuring that collateral is available to offset losses following the default of a derivatives counterparty. Exchanging margin also helps to internalize the cost of risk-taking, thus creating an incentive for counterparties not to take on excessive risk when entering into derivatives transactions. On an aggregate level, margin requirements help to reduce contagion and spillover effects when a major market participant defaults, thus reducing systemic risk. The risk mitigation standards for non-centrally cleared OTC derivatives encourage the adoption of sound risk mitigation techniques to promote legal certainty over the terms of non-centrally cleared OTC derivatives transactions, to foster effective management of counterparty credit risk and to facilitate timely resolution of disputes.
Comment Due Date: June 25, 2020
Keywords: Asia Pacific, Hong Kong, Banking, Securities, Supervisory Policy Manual, OTC Derivatives, Counterparty Credit Risk, Variation Margin, Initial Margin, HKMA
Previous ArticlePRA Finalizes Policy on Supervisory Approach for Insurance SPVs
APRA updated the lists of the Direct to APRA (D2A) validation and derivation rules for authorized deposit-taking institutions, insurers, and superannuation entities.
EC adopted a package that includes the digital finance and retail payments strategies and the legislative proposals for regulatory frameworks on crypto-assets and digital operational resilience.
ECB published an opinion (CON/2020/22) on proposals for regulations amending the securitization framework of EU, in response to the COVID-19 pandemic.
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.
MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.
FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.
ISDA issued a letter to regulators to flag that it now expects the supplement to the 2006 ISDA Definitions and the Interbank Offered Rate (IBOR) Fallbacks Protocol to be effective around mid- to late-January 2021.
APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.
ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.
BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.