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The global financial crisis in 2008 triggered a global movement to improve transparency and reduce counterparty risks in the over-the-counter (OTC) derivatives markets, resulting in reforms to the OTC derivatives markets on various fronts. The reform measures adopted by the international regulatory community include requiring all OTC derivatives transactions be reported to trade repositories (TRs) and all standardized OTC derivatives transactions be cleared at central counterparty (CCP) clearing facilities.


As TR is a centralised registry that maintains an electronic database of records of OTC derivatives transactions. By collecting and providing OTC derivatives transactions information to regulatory authorities, the TR plays a vital role in supporting authorities in carrying out their market surveillance responsibilities, which will help maintain stability of the financial systems. It also helps increase transparency in the market, promotes standardization and provides a level of consistency in the quality and availability of transaction data. 


To meet international standards, the HKMA announced in December 2010 to establish a TR in Hong Kong, and that a link will be developed between the TR and the CCP for OTC derivatives to be launched by Hong Kong Exchanges and Clearing Ltd to allow eligible transactions to be passed to the CCP for central clearing. The HKMA also worked in concert with the Government and the Securities and Futures Commission (“SFC”) to build a regulatory regime for the OTC derivatives markets under the Securities and Futures Ordinance (“SFO”), including requirements for mandatory reporting to the TR of the HKMA and mandatory clearing at designated CCPs. In August 2013, the HKMA introduced interim reporting requirements to require Licensed Banks (“LBs”) to report OTC derivatives transactions with another LB to the TR of the HKMA. A set of Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules (the “Reporting Rules”) was introduced into the Legislative Council for negative vetting in June 2015, the effective date of the Reporting Rules is on 10 July 2015. The interim reporting requirements was ceased upon the commencement of the Reporting Rules.

 

To prepare for the commencement of central clearing of OTC derivatives transactions in Hong Kong, the HKTR launched the link with the CCP of the HKEx in December 2012.  In July 2013, the HKTR activated the reporting function to support the commencement of reporting under the interim reporting requirements.   To cope with evolving international and local reporting and regulatory standards, further enhancements will be made to the HKTR. 

 
Scope of Services


The services provided by the HKTR comprise Trade Reporting Service and Trade Matching and Confirmation Service.

  • Trade Reporting Service

  • Trade Matching and Confirmation Service

Under the new regulatory regime , Authorized Institutions (“AIs”) and Approved Money Brokers (“AMBs”) licensed and regulated by the HKMA under the Banking Ordinance; Licensed Corporations (“LCs”), recognised clearing houses (“RCHs”) and automated trading services - central counterparty (“ATS-CCP”) licensed and regulated by the SFC under the SFO are required to report specified OTC derivatives transactions done or conducted by them to the HKTR. Activity thresholds and exemptions are available to exempt entities with a low activity level and end-users from reporting.


However, entities subject to mandatory clearing requirement will not be required under the OTC Regulatory Regime to make use of the service of the HKTR to match and confirm transactions subject to mandatory clearing.


An entity must join the HKTR as a TR Member before using the services of the HKTR.   The two services are provided independently to TR Members.

 
Trade Reporting Service


The HKTR provides an electronic system for collecting, keeping and maintaining details of OTC derivatives transactions efficiently and securely, primarily for market participants to meet the statutory reporting requirements under the OTC Regulatory Regime, and the interim reporting requirements. In July 2013, the service was initially launched to support reporting of certain interest rate derivatives and foreign exchanged derivatives transactions. The HKTR Reporting Service Product Scope was further expanded in September 2014 to cover equity derivatives and more products under interest rate and foreign exchanged derivatives. Further in June 2016, apart from adding credit and commodity derivatives into the product scope, the HKTR system also supports the reporting of daily valuation transaction information.


Eligible Entity
Entities eligible to subscribe to the Trade Reporting Service are either-

  • entities subject to mandatory reporting requirements under either the interim reporting requirements or the OTC Regulatory Regime; or

  • other entities at the discretion of and subject to conditions specified by the HKMA.


Trade Matching and Confirmation Service


The HKTR provides an electronic trade matching and confirmation platform for matching and confirming OTC derivatives transactions efficiently and in conformity with market standards, and submitting the confirmed transactions to the CCP of the HKEx for clearing. The Service was launched in December 2012.


Eligible Entity
Only clearing members of the OTC derivatives CCP of the HKEx are eligible to subscribe to the Trade Matching and Confirmation Service.

 

Disclosure Framework for HKTR


The Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements and the International Organization of Securities Commissions (IOSCO) have jointly issued a disclosure framework and assessment methodology (http://www.bis.org/publ/cpss106.pdf) for their principles for financial market infrastructures (PFMIs), which is the new international standards for financial market infrastructures (FMIs).


Through the publication of the disclosure framework (PDF File, 290KB), the CPMI and IOSCO intend to promote the disclosure of information by all FMIs to facilitate implementation and ongoing observance of the Principles for Financial Market Infrastructures (http://www.bis.org/publ/cpss101a.pdf). Further, the disclosure framework is intended to promote a base level of transparency for information about FMIs. This transparency is intended to assist participants, authorities and the broader public in better understanding the activities of an FMI, its risk profile and its risk management practices and will thus support sound decision-making by FMIs and their stakeholders. In this way, the disclosure framework will achieve the greater public policy goal of strengthening financial stability.   



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Last revision date: 14 August 2017