The Securities and Futures (OTC Derivative Transactions – Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules (the Clearing Rules) impose mandatory clearing obligations for certain over-the-counter (OTC) derivative transactions. A key part of the regulatory framework for mandatory clearing of OTC derivative transactions is the designation by the Securities and Futures Commission (SFC) of central counterparties through which such transactions can be cleared.
On 31 August 2016, the SFC issued notices designating four central counterparties (CCPs). The four designated CCPs include one Hong Kong CCP and three overseas CCPs:
Each designated CCP is subject to conditions that are set out on the SFC website (available here). The conditions for each are substantially the same, except for the following:
The mandatory clearing obligation under the Clearing Rules will apply where all the following elements are present:
The first date on which specified OTC derivative transactions will need to be cleared through a designated CCP is 1 July 2017. If you are subject to the mandatory clearing obligation under the Clearing Rules, you must ensure that any relevant OTC derivative transaction is cleared through one of the four designated CCPs and that the relevant central counterparty is a designated CCP for the particular type of OTC derivative transaction.
For asset managers, the specified clearing thresholds under the Clearing Rules have been set at a high level so, even if an asset manager is a counterparty to a “plain vanilla” interest rate swap, it is unlikely the asset manager’s proprietary OTC derivative positions will exceed the clearing threshold. The Clearing Rules do not currently apply to OTC derivative transactions where the counterparty is a collective investment scheme managed by an asset manager.
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