SFC notifies the industry of a thematic review on
prime services and related equity derivatives activities

30 Oct 2017



The SFC commenced a thematic review on prime services1 and related equity derivatives activities in Hong Kong with key objectives to identify potential conduct issues arising from the practice adopted by prime brokers, to assess the internal controls in place, and to provide guidance on how the risks are managed.

Prime services have become a key revenue stream for financial institutions amid the growth of the hedge fund industry as well as the asset management business in Hong Kong.  Major prime brokers have strong presence in Hong Kong to provide services to hedge funds and other institutional clients, including Asian clients and global clients trading through the Stock Connect and access products.  Many of the client servicing activities and related internal control functions and risk management activities related to prime services are carried out in Hong Kong. 

In light of this development, the SFC decided to conduct the thematic review focusing on the following areas:

As the operating model of prime services is unique, the SFC has engaged an external consultant to assist in conducting this thematic review.  The thematic review will be conducted through a combination of industry survey, meetings and on-site inspections.  As part of the thematic review, the SFC will work together with the external consultant to:

The findings of the review would form the basis for the SFC to issue further guidance to the market.  SFC will also share the findings of the thematic review with the industry, where appropriate. 

Should you have any queries regarding the contents of this circular, please contact Ms. Denise Chan on 2231 1188.  

Intermediaries Supervision Department
Intermediaries Division
Securities and Futures Commission

End

SFO/IS/044/2017

  

1 Prime services refer to one-stop-shop services, including trade execution and clearing, securities borrowing and lending, custody, financing solutions, reporting, capital introduction, consulting etc., provided to institutional clients such as hedge fund managers. Financial institutions that offer prime services are referred to as prime brokers.

 


Click here to download the document


Page last updated : 30 Oct 2017