Proposed changes to position limits and large open position reporting requirements – further consultation

Comments / questions on key proposals in the First Consultation

SFC’s response

• The SFC reiterated that the policy intention is to impose position limits and reporting requirements at the individual fund level because each fund is distinct and has its own investment mandate.
  
  Hence, where a person holds or controls positions for more than one fund, the SFC will require the person to apply the position limits and reporting levels to the position of each fund. However, if the person has discretion over the funds’ positions, for the purpose of compliance with the Rules, the person will have to aggregate the positions of all the funds together with his or her own position.

• Similarly, for umbrella funds, the policy intention is to apply position limits and reporting requirements to positions of each of the sub-funds under an umbrella fund because each sub-fund is managed independently, like a standalone fund, according to its investment mandate or strategy. Therefore, applying the position limits and reporting requirements at the sub-fund level would be sensible and in line with how each sub-fund’s positions and the associated risks are managed.

• The concerns about duplicated efforts in reporting (ie, multiple parties having to report the same position) is a misconception because asset managers generally have discretion over the positions of their funds and hence they will need to aggregate the positions of the funds under their control to comply with the position limits and reporting requirements.

• The SFC considers that it would be more appropriate for the person responsible for the day-to-day investment and operation of funds (ie, the asset manager) to have the primary responsibility for observing position limit compliance and reporting obligations at the individual fund and sub-fund level because they control trading and have first-hand information about the funds’ positions.

• Nevertheless, as the Rules apply to any person who “holds or controls” positions, trustees are still subject to the requirements of the Rules. If a trustee can demonstrate that it has measures in place to ensure the asset manager who manages its unit trusts has observed position limit compliance and reported positions on its behalf, the SFC will consider that the trustee has discharged its obligations under the Rules.

• The SFC confirmed that the Rules are intended to cover funds of all legal forms and structures. The SFC highlighted unit trusts in the First Consultation mainly because there could be uncertainties about whether unit trusts were subject to the Rules.

• The proposals in the First Consultation was to clarify the application of the Rules to sub-funds of unit trusts or corporate funds, considering that the two forms are the dominant fund types in Hong Kong. The SFC proposes to further amend the Rules to clarify how they should apply to funds in general.

The SFC received comment that the disclosure of the name of a unit trust or sub-fund in a reportable notice would be sensitive.

The SFC considers that this information is essential for market monitoring. However, the SFC takes note of the industry’s concern and will ensure that the information will not be disclosed to the public.