Management Summary
- Purpose / Background: The HKMA and SFC reviewed the current regulatory framework for OTC derivative mandatory clearing. The current system required periodic legislative amendments to add new "Calculation Periods" and "Prescribed Days" as they expired.
- One-line conclusion: The regulators are adopting a recurring, automated annual schedule for Calculation Periods starting March 1, 2027, eliminating the need for recurring legislative amendments.
- Key Changes:
- Standardized annual cycle: Two fixed Calculation Periods per year (March 1–May 31 and September 1–November 30).
- Fixed Prescribed Days: January 1 and July 1 of the following year, respectively.
- Automation of schedule: Eliminates the requirement for future ad-hoc legislative amendments to maintain the clearing obligation calendar.
- Stability: Clearing Threshold remains fixed at US$20 billion.
- Key Dates / Deadlines:
- Legislative Council tabling: Q3 2026.
- Effective date: March 1, 2027.
- Applicability / Impact scope: All "prescribed persons" subject to mandatory clearing requirements for OTC derivative transactions under the Clearing Rules.
- Recommended management actions:
- Update internal compliance calendars and monitoring systems to reflect the new, permanent semi-annual schedule.
- Review current OTC derivatives position monitoring processes to ensure they align with the fixed March/September calculation windows.
- Socialize the permanent nature of these windows with internal treasury and risk management teams to ensure consistent threshold monitoring.
- Monitor the gazettal of the amendment rules following the LegCo negative vetting process in Q3 2026.
Detailed Summary
- Document overview
- This document presents the joint conclusions of the HKMA and SFC regarding proposed amendments to the "Clearing Rules." It seeks to institutionalize the process for setting Calculation Periods to ensure operational efficiency for market participants.
- Main requirements
- Prescribed persons must monitor their average local total position in relevant OTC derivatives during the designated Calculation Periods.
- If the US$20 billion threshold is met, the entity is obligated to clear transactions with a designated central counterparty starting from the designated Prescribed Day.
- Key changes
- Shift from "ad-hoc legislative updates" to a "permanent rule-based schedule."
- From March 1, 2027 onwards, Schedule 2 of the Clearing Rules will automatically prescribe:
- Window 1: March 1 to May 31 (Prescribed Day: January 1 of the following year).
- Window 2: September 1 to November 30 (Prescribed Day: July 1 of the following year).
- Important dates & transition
- Q3 2026: Tabling at the Legislative Council.
- March 1, 2027: Effective date and start of the new permanent calculation cycle.
- Impact and risks
- Operational: Low risk, as the approach mirrors existing arrangements, but now provides greater long-term certainty.
- Compliance: Reduced risk of missing legislative updates since the schedule is now permanent.
- IT/Reporting: Internal systems should be configured for the new recurring schedule rather than waiting for annual/periodic updates to the Clearing Rules.
- Compliance action checklist
- Verify that internal risk engines are hard-coded to trigger threshold checks during the now-permanent semi-annual windows.
- Update compliance policy documentation to remove references to "periodic legislative updates" regarding calculation dates.
- Conduct a final review of the amendment rules post-LegCo vetting in late 2026 to ensure no unforeseen deviations were made during the legislative process.
- Appendices/attachments summary
- Annex 1: Lists the six industry bodies and entities (including HKAB, ISDA, and anonymous respondents) that provided feedback, all of whom supported the move for operational certainty.
- Annex 2: Provides the specific draft text for the "Amendment Rules 2026," which formally adds the permanent items to Schedule 2 of the Clearing Rules (Item 21 and 22).