Bloomberg News

Hong Kong Weighing OTC Derivatives Regulation With Consultation

October 17, 2011

Oct. 17 (Bloomberg) -- Hong Kong has begun consultation on proposals for regulation of the city’s over-the-counter derivatives market in a bid to reduce systemic risk in the wake of the 2008 collapse of Lehman Brothers Holdings Inc.

Main proposals included in the consultation paper released by the Hong Kong Monetary Authority and the city’s Securities and Futures Commission include mandatory reporting and central clearing of over-the-counter transactions. Hong Kong Exchanges & Clearing Ltd., the city’s bourse operator, will establish a clearing house for the transactions while the the HKMA will create a trade repository to collect data on the market. The consultation will end on Nov. 30.

“We have to be in step with international practices,” Edmond Lau, executive director at the HKMA, said at a media briefing in Hong Kong today. The collapse of Lehman Brothers and bailouts of major institutions have led to views among mature markets that regulations are necessary, Lau said in a translated comment.

The clearing house and repository are scheduled to begin operation in the third-quarter of 2012, according to a document handed to reporters. The proposed regime may be subject to further change, the regulators said in a statement.

Global regulators sought new rules for over-the-counter derivatives following the collapse of Lehman Brothers. The over- the-counter derivatives market reached $601 trillion last year, according Bank for International Settlements data compiled by Bloomberg.

‘Can’t Lag Behind’

The Financial Stability Board said last week global implementation of tighter rules for over-the-counter derivatives trading risk falling behind schedule. Some Group of 20 nations including Canada, Hong Kong, India, Mexico, South Korea and Russia, are among the countries that may miss the end-2012 implementation deadline unless they take further steps, the board said.

“Hong Kong can’t be a leader on this matter, but we can’t lag behind,” HKMA’s Lau said today. “As an international financial center, we need to follow international standards.”

The FSB brings together regulators and finance ministry officials from the G-20, as well as standard-setting bodies such as the Basel Committee on Banking Supervision.

--With assistance from Marco Lui in Hong Kong. Editors: Nick Gentle, Neil Western

To contact the reporter on this story: Kana Nishizawa in Hong Kong at

To contact the editor responsible for this story: Nick Gentle at

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