SFC launches consultation on OTC derivatives and conduct risks

20 Dec 2017

The Securities and Futures Commission (SFC) today launched a two-month consultation on proposals to refine the over-the-counter (OTC) derivatives regime (Note 1) and to require licensed corporations to properly manage financial exposures to connected persons.

In response to market comments, the SFC proposes to refine the scope of regulated activities (RAs) to provide more clarity about the OTC derivatives licensing regime, for example, to narrow the scope of certain RAs so that they do not capture corporate treasury activities of non-financial groups and certain portfolio compression services.

The consultation also includes proposals related to risk mitigation, client clearing, record keeping and other conduct requirements for OTC derivatives transactions, as well as licensing fees, insurance, competence and training requirements under the new OTC derivatives licensing regime.

More broadly, the SFC proposes to require licensed corporations to properly manage their financial exposures to group affiliates and other connected persons according to the same risk management standards they would apply to independent third parties.

"These proposals are part of comprehensive reforms to enhance Hong Kong's regulatory regime for OTC derivatives activities and to strengthen the management of conduct and financial risks in transactions and business dealings with related parties," said Mr Ashley Alder, the SFC's Chief Executive Officer. "The SFC has worked closely with other authorities to put in place a legal and regulatory framework to implement the G20 commitments to reform OTC derivatives markets and Hong Kong has made considerable progress in this direction."

Interested parties are invited to submit their comments to the SFC on or before 20 February 2018 via the SFC website (www.sfc.hk), by email (otcandconduct_consultation@sfc.hk), by post or by fax to 2523 4598.



  1. At summits in Pittsburgh in September 2009 and in Cannes in November 2011, G20 leaders introduced OTC derivatives market reforms to improve transparency, reduce counterparty risk and prevent market abuse. In September 2013, the SFC released consultation conclusions on the primary legislation for the regulation of OTC derivatives. The Securities and Futures (Amendment) Ordinance 2014 was enacted the following year and is commencing in phases.

Page last updated : 20 Dec 2017