Regulatory update (Dodd-Frank series) Derivative regulatory reform in Hong Kong and Singapore

Transcription

1 Regulatory update (Dodd-Frank series) Derivative regulatory reform in Hong Kong and Singapore Wednesday 17 th July 2013

2 Webinar agenda < 60 min Introduction Rebecca Bond, Group Marketing Director Key speaker: Gavin McConville, Business Matter Expert Derivative regulatory reform in Hong Kong and Singapore Questions & Answers Online questionnaire

3 Dodd-Frank act webinar series: webinar business briefings 29 th March 31 st May Impact on Swap market - regulatory update and look at technological challenges in achieving Dodd-Frank Act Title VII compliance Update on Dodd-Frank Act Title VII: Definition, record-keeping and cross-border issues 17 th July Derivative regulatory reform in Hong Kong and Singapore Next To be announced

4 2 streams: Regulatory updates Collateral management series 19 th April: COREP 30 th April: Self certification 9 th May: Impact of the PRA 16 th May: Collateral management 22 nd May: COREP and regulation 13 th June: Regulatory update 26 th June: FINREP 11 th July: COREP 17 th July: Today s webinar More to December and beyond /events (and past events)

5 Summary and slides of previous briefing(s) are available upon request Managing collateralised trading Enabling regulatory compliance

6 Let s get started. with a short introduction

7 Lombard Risk today: a leading player in global risk and compliance solutions Ticker: LRM Founded in 1989 Trusted providers for more than 23 years 300+ banks, hedge funds, commodity trading and fund management clients in 25 countries Solutions for global financial services institutions Experts in Dodd-Frank Swap reporting A market leader in Collateral Management solutions No.1 provider of Regulatory Compliance solutions in both the United States and United Kingdom - with global coverage Leading Liquidity Analysis provider

8 Global 270+ in 10 global offices R&D and Testing centre Luxembourg Shanghai New York and New Jersey 489 Fifth Avenue New York, NY London Ludgate House 245 Blackfriars Road London SE1 9UF Tel: +44 (0) South Africa 34 th Floor Hai Tong Securities Tower 689 Guang Dong Road Shanghai P.R.China Tel: +86 (0) Mumbai Tel: One Gateway Center 26 th Floor New Jersey, NJ Tel: US operations Miami and Atlanta Headquarters Singapore 30 Raffles Place #20-04 Chevron House Singapore Tel: Hong Kong Unit 2105, 21 st Floor Harcourt House 39 Gloucester Road Wanchai, Hong Kong Tel: Tokyo Level 14, Hibiya Central Building Nishi-Shimbashi Minato-ku, Tokyo Tel: Asia Pacific and Japan operations

9 Global client base: 300+

10 Integrated solution: Regulatory risk and compliance, collateral management, liquidity analysis, management information, transaction reporting

11 Handing you over.

12 Regulatory update: Derivative regulatory reporting in Hong Kong and Singapore Monetary Authority of Singapore / HKMA Mandatory reporting Mandatory trading Mandatory clearing Asia and beyond USA, Japan and Australia Lombard Risk experience and solution

13 Polling question #1 What OTC derivative initiatives are of interest to your institution? A Dodd-Frank act B European Markets Infrastructure Regulation (EMIR) C Hong Kong Monetary Authority (HKMA) transactional reporting D Monetary Authority Singapore (MAS) transaction reporting E Australian Securities & Investments Commission (ASIC) transactional reporting

14 Monetary Authority of Singapore - MAS

15 MAS: SF(A) Act 2012 Monetary Authority Singapore (MAS) 15 th November 2012 Securities and Futures (Amendment) Act 2012 (SF(A) Act) 2012 passed by parliament Gave effect to policy proposals relating to regulation of Over-The-Counter (OTC) derivatives

16 MAS: OTC Consultation Paper (OTC CP) Key proposals Mandatory central clearing of OTC Derivative Contracts (DCs) Mandatory reporting of OTC DCs Licensing of derivatives market operators, clearing facilities and Trade Repositories (TRs) Licensing of market intermediaries for OTC derivatives

17 MAS: Scope of OTC CP MAS proposes to implement the changes by expanding the scope of Chapter 289 of the Securities and Futures Act (SFA) to regulate OTC derivatives activities Introduce Derivative Contracts (DCs) Encompassing 5 major asset classes: (1) Commodities (2) Credit (3) Equities (4) Foreign exchange (5) Interest rates MAS considered amendments to relevant parts of the SFA arising from the regulation of OTC derivatives Will make changes to align the treatment of OTC derivatives with that for securities and futures contract where appropriate

18 MAS: Under OTC CP proposals Mandatory reporting A party, subject to the reporting mandate, would be required to report OTC DCs to an eligible TR WITHIN ONE BUSINESS DAY of the contract being entered into or amended

19 MAS: Mandatory reporting Scope: DCs must be reported to a TR if: The contract relates to any product that is required to be reported The contract is booked or traded in Singapore

20 MAS: Mandatory reporting - scope Products required to be reported ALL OTC DCs asset classes will need to be reported Phased approach Prioritised by significance of products on the Singapore OTC derivatives market Interest Rate Swaps (IRS) Foreign exchange derivatives (FX) Oil derivatives Others.

21 MAS: Entities covered The reporting mandate is proposed to cover all: Financial Entities (FEs) Non-Financial Entities (NFEs)

22 MAS: Entities covered - FEs All Financial Entities (FEs) Financial institutions regulated by the MAS That exceed relevant thresholds (taking into account the size of its derivative exposure In aggregate or By product)

23 MAS: Entities covered - NFEs All Non-Financial Entities (NFEs) Persons resident, or with a presence in, Singapore NOT regulated by the MAS That exceed relevant thresholds (taking into account the size of its derivative exposure In aggregate or By product) N.b. Hedging transactions will be EXCLUDED when determining threshold

24 MAS: Entities exempted from clearing mandate Public bodies (i.e. central banks, central governments and supra-nationals organisations) Also exempt from mandatory REPORTING obligations, while Singapore-incorporated banks would need to report on a groupwide basis Intra-group transactions Such transactions WILL be subject to collateralisation requirements similar to EU Pension schemes Reportable transaction CAN be reported by JUST ONE OF THE PARTIES, or by a 3 RD PARTY (e.g. CCP)

25 MAS: International standards Supports Legal Entity Identifiers (LEIs) Supports product classification system As recommended in the CPSS-IOSCO Data Aggregation Report

26 MAS: Mandatory TRADING No mandatory trading is currently proposed by MAS MAS has not set out proposals for mandatory trading of OTC DCs on exchanges/electronic trading platforms Also a G20 objective Opted to consult on mandatory trading at a later stage, after undertaking further study of local market conditions US and EU - discussions on mandatory trading are more advanced Hong Kong - regulators are also not imposing a mandatory trading obligation at the outset, pending further assessment of the local market

27 MAS: Mandatory CLEARING Under the OTC CP, an OTC DC WOULD need to be cleared through a Central Clearing Counterparty (CCP) if: DC relates to any product that is required to be centrally cleared At least ONE leg of the contract is booked in Singapore At least ONE of the parties is resident or have a presence in Singapore AND Both parties are either subject to the clearing mandate OR If it is NOT resident, or does NOT have a presence in Singapore, would have been subject to the clearing mandate IF IT WERE resident or had a presence in Singapore

28 MAS: Mandatory CLEARING PRODUCTS required to be centrally cleared: MAS has proposed a bottom-up, top-down approach Similar to that proposed in the US, EU and Hong Kong The proposed criteria for approving a product for mandatory clearing also follows criteria proposed by other jurisdictions such as the US and Australia Initial products that MAS are considering for mandatory clearing are: Singapore Dollar (SGD) Interest Rate Swaps (IRS) US Dollar (USD) IRS and certain Asian currency Non-Deliverable Forwards (NDFs) FX forwards and swaps (as opposed to currency options, NDFs and currency swaps) are expressly proposed to be excluded

29 MAS: Mandatory CLEARING ENTITIES covered Financial Entities Non-Financial Entities

30 Polling question #2 What do you see as the major challenges to your institution in meeting both local and global requirements of OTC transactional reporting regimes? A B C D E Connectivity to trade repositories and swap data repositories. Application of cross-border rules and extraterritoriality issues. Consolidation of local solution into a global framework. Changes in policies and procedures. Adaption of trade workflows to meet you requirements on an ongoing basis

31 Hong Kong Monetary Authority HKMA and Securities and Futures Commission (of Hong Kong) - SFC

32 HKMA / SFC: Joint proposal Joint proposal on a regulatory regime for the OTC derivatives market in Hong Kong Regulation of the Hong Kong OTC derivatives market

33 HKMA / SFC: Regulation of Hong Kong OTC market Legislative and regulatory framework The regime will be jointly overseen and regulated by the HKMA and SFC HKMA Authorised Institutions (AIs) Approved Money Brokers (AMBs) The HKMA will be granted the relevant investigation and disciplinary powers under the SFC to ensure that it is able to take action in respect of any breach of the proposed regulatory regime by AIs and AMBs SFC Licensed Corporations (LCs)

34 HKMA / SFC: Regulation of Hong Kong OTC market OTC product coverage and mandatory REPORTING obligations Interest rate swaps and non-deliverable forwards OTC product coverage and mandatory TRADING obligations Government will conduct further studies to assess how best to implement the requirements in Hong Kong Having regard to the liquidity level and number of trading venues in the market

35 HKMA / SFC: Mandatory REPORTING Irrespective of whether they are centrally cleared, or not, LOCALLY incorporated AIs, AMBs and LCs will have to report all reportable transactions that: They are counterparty to OR They have executed or originated AND The transaction has a Hong Kong nexus/connection

36 HKMA / SFC: Mandatory REPORTING OVERSEAS incorporated AIs will have to report all reportable transactions that: They are counterparty to, acting through their Hong Kong branch OR They have executed or originated, acting through their Hong Kong branch AND Have a Hong Kong nexus/connection

37 HKMA / SFC: Mandatory REPORTING Hong Kong nexus A reportable equity and credit derivative transaction has a Hong Kong nexus if: They are counterparty to, acting through their Hong Kong branch the underlying entity or the reference entity is listed in Hong Kong (and where there is more than one underlying or reference entity, a specified percentage of the entities are listed in Hong Kong) The reference entity is wholly owned by the government of Hong Kong OR The underlying is an index, and a specified percentage of the underlying companies are listed in Hong Kong

38 HKMA / SFC: Mandatory REPORTING Hong Kong nexus A reportable transaction for all other derivatives has a Hong Kong nexus if: The underlying asset, currency or rate is denominated in or related to Hong Kong dollars or Renminbi* * The Renminbi (CNY) is the national currency of the People's Republic of China (legal tender in China but not in Hong Kong)

39 HKMA / SFC: Mandatory REPORTING other Hong Kong persons Only if the transactions exceed a specified reporting threshold (to be determined later) Will however be exempted from the reporting obligations if an AI, AMB or LC is also subject to a reporting obligation in relation to the same transaction Overseas persons Will NOT be subject to any mandatory reporting obligations under Hong Kong law

40 HKMA / SFC: Mandatory CLEARING HKMA and SFC Propose to introduce a mandatory clearing obligation in Hong Kong whereby certain specified OTC derivatives transactions (i.e. clearing eligible transactions) must be cleared through a designated CCP Different from mandatory REPORTING obligations

41 HKMA / SFC: Mandatory CLEARING Mandatory CLEARING obligations differ from REPORTING obligations, specifically: Mandatory clearing obligation should apply to ALL CLEARING-ELIGIBLE TRANSATIONS WHENEVER: An AI, LC or Hong Kong person is a counterparty to the transaction OR An AI or LC has originated or executed the transaction (in the case of an overseas-incorporated AI), its involvement as a counterparty or person originating or executing the transaction must be through its Hong Kong branch AND Both counterparties to the transaction (irrespective of whether or not they themselves are AIs, LCs or Hong Kong persons) have exceeded the specified threshold

42 HKMA / SFC: Mandatory CLEARING Mandatory CLEARING EXEMPTION Exemptions should be given where: Both counterparties to the transaction are overseas persons (e.g. when an AI/LC originated a clearing-eligible transaction between two overseas persons) AND The transaction is either: Subject to mandatory clearing under the laws of an acceptable overseas jurisdiction, and has been centrally cleared in accordance with those laws OR Exempted from mandatory clearing under those laws

43 HKMA / SFC: Mandatory CLEARING Locally-incorporated AIs vs overseas-incorporated AIs The mandatory clearing obligation will apply differently to locallyincorporated AIs and overseas-incorporated AIs

44 HKMA / SFC: Mandatory CLEARING Mandatory Locally-incorporated AIs Mandatory clearing obligations will apply in respect of all its activities in clearing-eligible transactions irrespective of whether such activities are conducted through their Hong Kong office or through any overseas branch To facilitate the HKMA s consolidated supervision of locallyincorporated AIs, the HKMA may require a locally-incorporated AI to comply with the mandatory clearing obligation on an entity level or on a consolidated group basis

45 HKMA / SFC: Mandatory CLEARING Mandatory Overseas-incorporated AIs Mandatory clearing obligations will only apply in respect of activities in clearing-eligible transactions conducted through the Hong Kong branch In other words, it will only apply if the AI has become a counterparty to, or has originated or executed, the transactions through the Hong Kong branch

46 HKMA / SFC: Mandatory CLEARING EXEMPTION: Where both parties are overseas persons Limited exemption from the mandatory clearing obligation where the transaction is between two overseas persons and is already subject to, or exempt from, mandatory clearing under the laws of an acceptable overseas jurisdiction The requirement that the transaction either be centrally cleared in accordance with the laws of an acceptable overseas jurisdiction, or exempt from such laws, is essentially to ensure that even if the transaction is not cleared in accordance with Hong Kong law, it is cleared in accordance with the laws of an acceptable overseas jurisdiction. Alternatively, if the transaction is exempt from mandatory clearing under those laws, then that right to exemption should not be denied by Hong Kong law

47 Asia and beyond

48 Asia and beyond There is widespread global support for OTC derivative markets transparency Other regulators are moving ahead: United States America Japan Australia Trade reporting live across all asset classes Mandatory clearing now in force for certain instruments Working closely with regulators globally regarding extraterritorial aspects of global OTC regulation Legal framework for trade reporting established; under the law, J-FSA can collect trade data or delegate that authority to an off-shore entity Officials indicate they prefer to use established repository providers Reporting started 1st November 2012 (non-mandatory) Transition period to mandatory ended on 31st March 2013 Mandatory reporting began 1st April 2013 CP205 covers issues such as what institutions will need to report to trade repositories, what information will need to be reported, and when the reporting obligation will start for different classes of reporting entities ASIC has also considered the transaction reporting regimes being implemented in other parts of the world including the EU, USA, Singapore, Hong Kong and Canada to ensure consistency

49 Polling question #3 What trade repository to you plan on reporting to? A B C D E DTCC-GTR Depository Trust & Clearing Corporation-Global Trading Repository HKMA-TR Hong Kong Monetary Authority-Trade Repository CME Europe London-based European Derivatives Exchange REGIS-TR Joint venture by Spanish Central Securities Depository (CSD), Iberclear and Clearstream, an International Central Securities Depository (ICSD) Do not know

50 Lombard Risk REFORM transactional reporting solution Cross-asset, rules-based and event-driven

51 Cross-asset, Implications rules-based, of DFA for event-driven BBVA solution Firm s multiple data sources Out-of-the-box HKMA, MAS, ASIC solution Swap Execution Facilities (SEFs) e.g. Markitwire, ICAP, ICE etc ALL Swap Data Repositories (SDRs) - covering ALL asset classes Receiving/transmitting Unique Swap Identifiers APIs for major: Trading systems Back/middle office databases Valuation systems for MtMs etc. Collateral systems Others. Adapt for: Client-specific requirements Regulatory changes e.g. EMIR Internal scenarios (MIS), Inhouse SDR Others. Clearing houses Counterparties

52 Cross-asset, Implications rules-based, of DFA for event-driven BBVA solution Firm s multiple data sources Out-of-the-box HKMA, MAS, ASIC solution APIs for major: Trading systems Back/middle office databases Valuation systems for MtMs etc. Collateral systems Others. Adapt for: Client-specific requirements Regulatory changes e.g. EMIR Internal scenarios (MIS), Inhouse SDR Others.

53 Summary Implications of key of features DFA for of BBVA the Lombard Risk Dodd-Frank solution: REFORM Regulatory expertise of Lombard Risk Out-of-the-box HKMA, MAS, ASIC transaction reporting: REFORM Cross-asset Real-time Fully configurable System agnostic Event-driven Rules-based Connectivity (to SEFs, DCOs, TRs, SDRs) Scalable to meet future regulatory changes

54 Questions Implications & Answers of DFA for BBVA Questions submitted in advance: What TR connectivity do you offer? What is the implementation time of REFORM? Questions raised during the webinar? Open for additional questions now.