The Hong Kong Monetary Authority’s (HKMA) recently published consultation paper on reporting to the Hong Kong Trade Repository (HKTR) indicates that the regulator is aware of the “considerable amount of time” it will take for firms to be ready for reporting and that international standards developments need to be factored into the equation. The paper, which seeks industry comment on the key logistical and technical arrangements for reporting OTC derivatives transactions to the HKTR, is all part of the HKMA and Government and the Securities and Futures Commission’s (SFC) plan to launch the trade repository in September next year.
In line with the G20’s recommendations to establish centralised trade data repositories by the end of next year, the HKMA began examining the development of such a repository at the end of last year and this consultation paper is the culmination of that work. Much like the efforts of the Canadian Securities Administrator (CSA), the focus is on keeping in line with the rest of the world in terms of international standards developments, as well as attaining a higher level of consistency in the quality and availability of transaction data in the national market. After all, both the Canadian market and the Hong Kong market are dominated by international trading and therefore must adopt or be able to interpret and cross reference the messaging standards used by key foreign counterparts.
The HKMA paper indicates that many of the same developments happening in other markets are being proposed for trade reporting in Hong Kong. The regulator will, for example, permit firms to report via third party vendors that have been charged with the job of matching and reconciling data; essential for parties that are unable to invest in their own data infrastructures. The reporting requirements will also be phased in, starting with interest rate swaps (IRS) and ending with FX forwards.
The paper goes into some detail about how the HKTR will deal with items such as paired trades and how firms should go about indicating the stage of the trade’s lifecycle, as well as technical details of the planned interface with the exchange’s clearing counterparty (HKEx CCP).
In terms of proposed data standards, the HKMA indicates it will accept the submission of files in FpML or CSV. Templates will also be provided for this process: “A file submitted to the HKTR can contain one or more trade events. HKTR members should present the trade events in the file and the details of each event according to the file and data templates and standards promulgated by the HKTR, which may also be mirrored in the regulatory regime. Specifically, the fields in the data template will be classified into mandatory, conditional and optional fields.” The regulator indicates that once it has received these files, it will then validate this data and highlight any data standards issues.
In terms of the trade event details that must be included, the HKMA says: “Apart from key economic terms and trade confirmation details, the template also covers identifiers for uniquely identifying transaction, product and transacting parties with a view to facilitating sharing and aggregation of trade data among financial regulators.”
For legal entity identification (LEI) purposes, the regulator is initially intending to allow firms to use one of a number of options: a new HKTR member code; a Swift Bank Identifier Code (BIC); a Hong Kong Certificate of Incorporation/Certificate of Registration Number; a Hong Kong Business Registration Number; or internal counterparty or customer numbers assigned by trade repository members.
As for the future of a global LEI system, the regulator states: “The HKMA noted that international reporting standards setting authorities are progressing on introducing a global LEI for uniquely identifying participants in the OTC derivatives markets. The HKMA is fully supportive of the relevant development. Once the details of the global LEI scheme become available and the relevant LEI issuance authority is set up, the HKTR will work with the authority to consider how to factor the global LEI into the trade reporting arrangement in Hong Kong, in a way that will cause least possible additional effort to the HKTR members.”
Accordingly, the Hong Kong regulator’s proposals are referenced in the recent paper on the LEI by the Office of Financial Research (OFR) as an example of an Asian regulator that has displayed an interest in the adoption of a globally agreed LEI.
The HKMA indicates that once this consultation period has ended, it is intending to publish finalised logistical and technical arrangements for reporting by the end of October.
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