HKMA Consults on Supervisory Policy for OTC Derivatives Transactions
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 Article
HKMA Clarifies Regulatory Treatment of Measures to Ease COVID ImpactRelated Articles
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA Publishes Risk Dashboard for Third Quarter of 2020
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Finalizes Guide on Supervisory Approach to Bank Consolidation
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
SRB Chair Outlines Work Priorities for 2021
The SRB Chair Elke König published an article setting out work priorities for 2021.
FDIC Selects Companies to Compete in Final Phase of Tech Sprint
FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.