The Hong Kong Securities and Futures Commission fined The Hong Kong and Shanghai Banking Corporation Limited the equivalent of approximately US $325,000 (HK $2.5 million) for violating its position limits rules on multiple dates from May 26 through August 1, 2014. According to SFC, during the relevant time, HSBC violated its futures equivalent position limits for the Hang Seng China Enterprise Index futures contracts and options contracts traded on the Hong Kong and Futures Exchange on 18 days. HSBC’s breaches arose, said SFC, because, during the relevant time, “there were no policies and procedures in place for position limit monitoring and controls in relation to HKFE listed products” and “there was no staff responsible for monitoring the net open positions of HSCEI related products entered into by [HSBC’s] house account.” HSBC self-reported a one-time breach on July 31, 2014, as of July 30. Subsequently, on November 31, 2014, HSBC self-reported that it identified 17 days of breaches during the relevant period, and self-reported an additional day of breach on May 8, 2015. In announcing its sanction against HSBC, SFC noted that, since its violations, “HSBC has … taken steps to strengthen its internal controls on monitoring positions in HSCEI futures and options contracts to ensure compliance with the prescribed position limit.”
Compliance Weeds: Not just the Commodity Futures Trading Commission in the United States, but some foreign regulators, such as the HK Securities and Futures Commission, maintain position limits on certain futures and options contracts that must be adhered to by all persons who trade local markets. (Click here to access SFC’s position limit requirements and aggregation rules. Click here to see also, as an example, the article, “France Rolls Out Reporting and Position Limit Regime for Agricultural Commodity Derivatives Beginning July 1” in the June 14, 2015 edition of Bridging the Week.) Other jurisdictions, including Europe, are scheduled to implement a wide-ranging position limit regime, beginning January 2018. (Click here for details in the article, “ESMA Publishes Final Technical Standards for MiFID II” in the October 4, 2015 edition of Bridging the Week.) It behooves all traders accessing non-US markets to inquire, in advance, if position limits are applicable and if so, to ensure they are aware of the levels, as well as any aggregation rules and basis for exemptions.