HK Clearing Rules Updated to Account for Benchmark Reforms

The clearing obligation will no longer apply to transactions referencing LIBOR and EONIA, which have been discontinued. 

The HKMA (Hong Kong Monetary Authority) and SFC (Securities and Futures Commission) have finalised amendments to Hong Kong’s clearing rules for OTC derivative transactions.

The regulators proposed the amendments in March, to remove clearing obligations for IRS (interest rate swap) transactions referencing IBORs which are or will no longer be published or considered representative.

At the same time, the regulators proposed to require clearing for IRS transactions referencing ARRs (alternative reference rates) under specified conditions, in line with global interest rate benchmark reforms, particularly the transition from IBORs to ARRs.

The HKMA and SFC said the proposal received “overwhelming support” and that amendments will be submitted to LegCo for negative vetting. Subject to the legislative process, the amended clearing rules will come into effect no earlier than 1 July 2024.

Once the amendments come into force, requirements to clear transactions referencing USD LIBOR, GBP LIBOR, JPY LIBOR, EUR EONIA will be removed, and clearing will instead be required for transactions referencing USD SOFR, JPY TONA, and EUR €STR.

For HKD transactions, there is no plan to discontinue HIBOR so mandatory clearing will continue to be required for transactions referencing HIBOR. However, a requirement will be added to clear transactions referencing HONIA, consistent with the HKMA’s “multi-rate approach”.

For GBP transactions, the clearing rules already require clearing for transactions referencing GBP SONIA for OIS with “tenors from seven days to two years”. This will change to “tenors from seven days to 50 years”.