Securities & Futures Commission of Hong Kong

List of jurisdictions with comparable OTCD margin requirements

Pursuant to paragraph 50 of Part III of Schedule 10 to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct), a licensed person which enters into a non-centrally cleared over-the-counter (OTC) derivative transaction that is subject to the margin requirements set out in Part III (SFC requirements) with a counterparty which is subject to the margin requirements of another jurisdiction or regulator (counterparty’s margin requirements) may, in respect of the transaction, elect to adhere to the counterparty’s margin requirements instead of SFC requirements provided that the licensed person has notified the SFC of its intention to adhere to the counterparty’s margin requirements before it begins to do so, and the counterparty’s margin requirements are either (i) deemed to be comparable by the SFC under paragraph 50(b)(i) of Part III; or (ii) determined to be comparable by the SFC or Hong Kong Monetary Authority (HKMA) under paragraph 50(b)(ii) of Part III, subject to the licensed person who adheres to the counterparty’s margin requirements complying with the conditions specified by the SFC under paragraph 50(c) of Part III. 

For the purpose of paragraph 50(b)(i) of Part III of Schedule 10 to the Code of Conduct, the margin requirements of the WGMR member jurisdictions and regulators (where applicable) set out below are deemed to be comparable to the margin requirements set out in Part III, subject to the conditions specified by the SFC under paragraph 50(c) of Part III, as set out below. 

WGMR member jurisdictions or regulators in such jurisdictions whose margin requirements are deemed to be comparable

Applicable conditions specified by the SFC

Australia

Conditions (1) & (2) in the List of conditions specified by the SFC below.

Brazil

Canada

The European Union (EU)

HKMA

India

Japan

Republic of Korea

Russia

Singapore

Switzerland

The United Kingdom (as from the time it withdraws from the EU)

The United States of America

  • The Board of Governors of the Federal Reserve System
  • Federal Deposit Insurance Corporation
  • Office of the Comptroller of the Currency
  • Commodity Futures Trading Commission

The United States of America

  • Securities and Exchange Commission (SEC)

Conditions (1) to (5) in the List of conditions specified by the SFC below.  

 

For the purpose of paragraph 50(b)(ii) of Part III of Schedule 10 to the Code of Conduct, the margin requirements of the jurisdictions and regulators (where applicable) set out below are determined to be comparable to the margin requirements set out in Part III, subject to the conditions specified by the SFC under paragraph 50(c) of Part III, as set out below.

Jurisdictions or regulators in such jurisdictions whose margin requirements are determined to be comparable

Comparability determination issued by

Conditions specified by the SFC

(Nil)

 

 

 

List of conditions specified by the SFC under paragraph 50(c) of Part III of Schedule 10 to the Code of Conduct

General conditions applicable to a licensed person which elects to adhere to the margin requirements of:

(a) any WGMR member jurisdiction or regulators in such jurisdictions whose margin requirements are deemed to be comparable by the SFC; or (b) any jurisdiction or regulator in such jurisdictions whose margin requirements are determined to be comparable by the SFC or HKMA.

(1)  the licensed person is required to obtain approval in writing from the SFC before using an initial margin model, pursuant to Annex B of Part III of Schedule 10 to the Code of Conduct;

(2)  the margin collected by the licensed person should be subject to the asset eligibility requirements and collateral haircuts set out in paragraphs 37 to 45 of Part III of Schedule 10 to the Code of Conduct;

 

Specific conditions applicable to a licensed person which elects to adhere to the margin requirements of the SEC

(3)  if the licensed person elects not to collect initial margin from a counterparty pursuant to an exception in the SEC’s regime, the licensed person should deduct the full amount of the initial margin not collected from the counterparty from its liquid capital in calculating its liquid capital;

(4)  if the licensed person collects initial margin, any re-hypothecation, reuse or re-pledge of the initial margin can only be undertaken under the conditions set out in paragraph 26 of Part III of Schedule 10 to the Code of Conduct. This condition applies up to the amount of initial margin required to be collected under the SEC’s regime, including where the licensed person elects to collect initial margin instead of relying on an exception to the collecting obligation in the SEC’s regime;

(5)  if the licensed person posts initial margin to a counterparty, the licensed person should ensure that it is properly segregated and protected against the risk of insolvency of the counterparty collecting initial margin in accordance with paragraph 24 of Part III of Schedule 10 to the Code of Conduct.

3.6668 s