At the end of 2010, the Hong Kong Monetary Authority ("HKMA") and the Hong Kong Exchanges and Clearing Limited ("HKEx") announced their intentions for a new regulatory regime for over-the-counter ("OTC") derivatives trades in Hong Kong. The HKMA and HKEx intend to develop and launch a local trade repository ("TR") and a central counterparty ("CCP") for OTC derivatives trades in Hong Kong in 2012 and will work with the Government, the SFC, and other relevant stakeholders to build the new regulatory regime.

This new regulatory regime will include the reporting of OTC derivatives transactions to the TR and the clearing of standardised OTC derivatives transactions through the CCP. On an initial basis, the new regime will apply to interest rate swaps and non-deliverable forwards. As teething problems are smoothed out, the regime may be extended to cover other OTC derivatives asset classes. However, this will be further considered in line with local and overseas market developments (including further guidance from international regulatory bodies).

The industry will be consulted on the relevant supervisory requirements in the third quarter of 2011.

Remarks - International securities markets continue to see efforts to increase transparency and reduce the counterparty risks in the OTC derivatives markets in the shadow of the last global financial crisis. The Hong Kong authorities have been fully sold on the idea that for Hong Kong to continue as an international financial centre, it needs to comply with the international standards recommended by the G20. This includes that all standardised OTC derivatives contracts should be cleared through CCPs and all OTC derivatives contracts should be reported to TRs by the end of 2012.

The HKMA's article can be viewed HERE and the SFC's article HERE.