OTC derivatives regulatory regime
To address the structural deficiencies in the over-the-counter (OTC) derivatives market highlighted by the 2008 global financial crisis, the Legislative Council enacted the Securities and Futures (Amendment) Ordinance 2014 (Amendment Ordinance) on 26 March 2014. The amendments provide a regulatory framework for the OTC derivatives market in Hong Kong.
The Amendment Ordinance was implemented in stages over the years:
- Mandatory reporting - Mandatory reporting of transactions in certain interest rate swaps (IRS) and non-deliverable forwards and related record keeping obligations together with the general framework of the new regime was implemented on 10 July 2015. Mandatory reporting was expanded to all five key asset classes of OTC derivatives transactions (namely interest rates, foreign exchange, equities, credit and commodities) on 1 July 2017;
- Mandatory clearing - Mandatory clearing of certain transactions of standardised IRS in HKD or one of the G4 currencies (i.e. USD, EUR, GBP or JPY) and related record keeping obligations, together with designation of central counterparties for the purposes of mandatory clearing came into effect on 1 September 2016. Pursuant to global reform on interbank offered rates, further amendments were made to prescribed transactions subject to mandatory clearing and consequential amendments to designations of the central counterparties. These amendments came into effect from 1 July 2024;
- Other aspects of the regime are being finetuned from time to time, in line with global developments.
Primary Legislation:
- Securities and Futures (Amendment) Ordinance 2014
- Securities and Futures and Companies Legislation (Amendment) Ordinance 2021 – Part 3 and Division 4 of Part 4
Subsidiary Legislation and Gazette Notices:
Reporting Obligation related
- Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules, Cap.571AL – click here to access the Hong Kong e-Legislation (HKeL) operated by the Department of Justice
- Securities and Futures (Stock Markets, Futures Markets and Clearing Houses) Notice, Cap.571AM - click here to access the HKeL
- Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) (Amendment) Rules 2016
- Securities and Futures (OTC Derivative Transactions Reporting Obligation – Fees) Rules, Cap.571AO – click here to access the HKeL or here for the gazetted version
- Notice under rule 26(3) of the Reporting Rules designating jurisdictions for the purposes of the masking relief conferred under those rules (G.N. 4905 - 7 July 2015)
- Notice under rule 2A(2) of Securities and Futures (OTC Derivative Transactions - Reporting and Record Keeping Obligations) (Amendment) Rules 2016 specifying a class or description of specified OTC derivative transactions (G.N. 3912 - 15 July 2016)
- Securities and Futures (OTC Derivative Products) Notice, Cap.571AP - click here to access the HKeL or here for the gazetted version
- Securities and Futures (Stock Markets, Futures Markets and Clearing Houses) (Amendment) Notice 2018
Clearing Obligation related
- Securities and Futures (OTC Derivative Transactions – Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules, Cap.571AN – click here to access the Hong Kong e-Legislation (HKeL) operated by Department of Justice
- Securities and Futures (OTC Derivative Transactions - Clearing and Record Keeping Obligations and Designation of Central Counterparties) (Amendment) Rules 2023
- Securities and Futures (OTC Derivative Transactions - Clearing and Record Keeping Obligations and Designation of Central Counterparties) (Amendment) Rules 2022
- Amendments to Securities and Futures (OTC Derivative Transactions – Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules – Part 3 of Division 3 of the Securities and Futures and Companies Legislation (Amendment) Ordinance 2021
- Securities and Futures (Fees) (Amendment) Rules 2016
- Notice under rule 11(2) of Securities and Futures (OTC Derivative Transactions - Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules regarding designation of jurisdictions (G.N. 4777 - 22 August 2016)
- Notice under rule 3(1) and rule 3(3) of Securities and Futures (OTC Derivative Transaction – Clearing and Record Keeping obligations and Designation of Central Counterparties) Rules regarding designation of financial services providers (G.N. 7228 - 1 December 2023)
Previous Versions (for reference only)
- Securities and Futures (OTC Derivative Transactions – Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules, Cap.571AN – click here for the gazetted version
- Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules, Cap.571AL (as of 10 July 2015 (Phase 1 Reporting Rules)) – click here for the gazetted version
- Securities and Futures (Stock Markets, Futures Markets and Clearing Houses) Notice, Cap.571AM (as of 10 July 2015) – click here for the gazetted version
- Notice specifying currencies for the purposes of the definition of "specified currency" as set out in section 1 of Part 1 of Schedule 1 to the Reporting Rules (G.N. 4906 - 10 July 2015)
- Notice specifying floating interest rate indices for the purposes of the definition of "specified floating interest rate index" as set out in section 1 of Part 1 of Schedule 1 to the Reporting Rules (G.N. 4907 - 10 July 2015)
- Notice under rule 3(1) of Securities and Futures (OTC Derivative Transactions - Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules regarding designation of financial services providers (G.N. 4776 - 22 August 2016)
- Notice under rule 3(1) and rule 3(3) of Securities and Futures (OTC Derivative Transaction – Clearing and Record Keeping obligations and Designation of Central Counterparties) Rules regarding designation of financial services providers(G.N. 9212 - 4 December 2018)
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Notice under rule 3(1) and rule 3(3) of Securities and Futures (OTC Derivative Transaction – Clearing and Record Keeping obligations and Designation of Central Counterparties) Rules regarding designation of financial services providers (G.N. 7083 - 15 November 2019)
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Notice under rule 3(1) and rule 3(3) of Securities and Futures (OTC Derivative Transaction – Clearing and Record Keeping obligations and Designation of Central Counterparties) Rules regarding designation of financial services providers (G.N. 7127 - 26 November 2020)
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Notice under rule 3(1) and rule 3(3) of Securities and Futures (OTC Derivative Transaction – Clearing and Record Keeping obligations and Designation of Central Counterparties) Rules regarding designation of financial services providers (G.N. 7596 - 26 November 2021)
- Securities and Futures (OTC Derivative Transactions - Clearing and Record Keeping Obligations and Designation of Central Counterparties) (Amendment) Rules 2018
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Notice under rule 3(1) and rule 3(3) of Securities and Futures (OTC Derivative Transaction – Clearing and Record Keeping obligations and Designation of Central Counterparties) Rules regarding designation of financial services providers (G.N. 6961 - 21 November 2022)
List of Designated Central Counterparties for the Purposes of Mandatory Clearing:
- Chicago Mercantile Exchange Inc
- Japan Securities Clearing Corporation
- LCH Limited
- OTC Clearing Hong Kong Limited
List of prescribed persons that have reached the clearing threshold for the purposes of Mandatory Clearing:
- Published Date: 27 June 2017
- Published Date: 14 September 2018
- Published Date: 28 February 2020
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Published Date: 31 August 2021
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Published Date: 31 August 2022
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Published Date: 28 February 2023
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Published Date: 31 August 2023
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Published Date: 30 August 2024
Commencement Notices:
- Securities and Futures (Amendment) Ordinance 2014 (Commencement) Notice 2015
- Securities and Futures (Amendment) Ordinance 2014 (Commencement) Notice 2016
- Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules (Commencement) Notice
Public Consultations and Conclusions:
- Consultation paper on the proposed regulatory regime for the OTC derivatives market in Hong Kong – October 2011
- Joint consultation conclusions on the proposed regulatory regime for the OTC derivatives market in Hong Kong – July 2012
- Supplemental consultation on the OTC derivatives regime for Hong Kong – proposed scope of new/expanded regulated activities and regulatory oversight of systemically important players – July 2012
- Joint supplemental consultation conclusions on the OTC derivatives regime in Hong Kong – proposed scope of new/expanded regulated activities and regulatory oversight of systemically important participants – September 2013
- Consultation paper on the Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping) Rules – July 2014
- Consultation conclusions and further consultation on the Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules – November 2014
- Conclusions on further consultation on the Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules – May 2015
- Consultation paper on introducing mandatory clearing and expanding mandatory reporting - September 2015
- Consultation conclusions and further consultation on introducing mandatory clearing and expanding mandatory reporting – February 2016
- Further consultation conclusions on introducing mandatory clearing and expanding mandatory reporting – July 2016
- Joint consultation paper on the prescription of additional markets and clearing houses and prescription of Delta One Warrants under the OTC derivatives regulatory regime – April 2017
- Joint consultation conclusions on the prescription of additional markets and clearing houses and the prescription of Delta One Warrants under the OTC derivatives regulatory regime – June 2017
- Consultation Paper on (1) the OTC derivatives regime for Hong Kong - Proposed refinements to the scope of regulated activities, requirements in relation to OTC derivative risk mitigation, client clearing, record-keeping and licensing matters; and (2) Proposed conduct requirements to address risks posed by group affiliates – December 2017
- Joint consultation paper on enhancements to the OTC derivatives regime for Hong Kong to - (1) mandate the use of Legal Entity Identifiers for the reporting obligation, (2) expand the clearing obligation and (3) adopt a trading determination process for introducing a platform trading obligation – March 2018
- Joint consultation conclusions paper on enhancements to the OTC derivatives regime for Hong Kong to - (1) mandate the use of Legal Entity Identifiers for the reporting obligation, (2) expand the clearing obligation and (3) adopt a trading determination process for introducing a platform trading obligation – June 2018
- Consultation Paper on the OTC derivatives regime for Hong Kong – Proposed margin requirements for non-centrally cleared OTC derivative transactions - June 2018
- Consultation Conclusions on (1) the OTC derivatives regime for Hong Kong - Proposed requirements in relation to OTC derivative risk mitigation and client clearing; and (2) Proposed conduct requirements to address risks posed by group affiliates - December 2018
- Joint consultation paper on enhancements to the OTC derivatives regulatory regime for Hong Kong to – (1) mandate the use of Unique Transaction Identifiers for the reporting obligation, (2) revise the list of designated jurisdictions for the masking relief of the reporting obligation and (3) update the list of Financial Services Providers under the clearing obligation - April 2019
- Joint consultation conclusions paper on annual update to the list of Financial Services Providers under the clearing obligation for OTC derivative transactions - June 2019
- Consultation Conclusions on the OTC derivatives regime for Hong Kong - Proposed margin requirements for non-centrally cleared OTC derivative transactions - December 2019
- Joint consultation paper on the annual update to the list of Financial Services Providers under the clearing obligation for over-the-counter derivative transactions - March 2020
- Consultation conclusions on the OTC derivatives regime for Hong Kong - Proposed refinements to the scope of regulated activities and competence requirements under the OTC derivatives licensing regime - June 2020
- Joint consultation conclusions paper on annual update to the list of Financial Services Providers under the clearing obligation for OTC derivative transactions - June 2020
- Joint consultation paper on the annual update to the list of Financial Services Providers under the Clearing Rules for over-the-counter derivative transactions - April 2021
- Joint consultation conclusions paper on the annual update to the list of Financial Services Providers under the Clearing Rules for over-the-counter derivative transactions - June 2021
Frequently Asked Questions, Guidelines and Manuals:
- FAQs on the operation and implementation of the mandatory reporting regime
- FAQs on the operation and implementation of the mandatory clearing regime
- Supplementary Reporting Instructions (SRI) for OTC Derivative Transactions – click here to access the Hong Kong Trade Repository website
- OTC Derivatives Trade Repository Reporting Service Reference Manual – click here to access the Hong Kong Trade Repository website
- Hong Kong Trade Repository Administration and Interface Development Guide – Reporting Service – click here to access the Hong Kong Trade Repository website
- Operating Procedures for the Hong Kong Trade Repository – User Manual for Participants (Administrative Functions) – click here to access the Hong Kong Trade Repository website
- Operating Procedures for the Hong Kong Trade Repository – User Manual for Participants (Trade Functions – Reporting Service) – click here to access the Hong Kong Trade Repository website
- Operating Procedures for the Hong Kong Trade Repository – User Manual for Participants (Trade Functions – Reporting Service – Appendix) – click here to access the Hong Kong Trade Repository website
Other Information:
Hong Kong Trade Repository website: http://hktr.hkma.gov.hk/
Last update: 26 Sep 2024