by Roland Kielman
The Asian financial centers of Japan, Hong Kong and Singapore remain at the forefront of financial reform in Asia and are moving quickly to develop and implement regulatory standards for trade repositories and the reporting of over-the-counter (OTC) derivatives transactions.
“Several Asian markets are significant players in OTC interest rate, foreign exchange and commodities derivatives, which make the region a critical player in the pursuit of a globally harmonized regulatory regime for these markets,” said Michael Bodson, DTCC President and CEO-elect. “DTCC has developed a strong network of relationships in the region, forged by a common commitment to the development of a sound and unified global system for OTC trade reporting.”
In the last year, DTCC has become active in Asia as it works to lay the groundwork for its Global Trade Repository (GTR) complex, and an increasingly broad collection of Asian jurisdictions are moving to support the effort. The company has met with a host of Asian policymakers in recent months, including officials from Japan’s Financial Services Authority, the Monetary Authority of Singapore (MAS), and the Hong Kong Monetary Authority, among others.
Singapore: new data center
DTCC has been in close contact with MAS, Singapore’s central bank and primary financial regulator.
DTCC recently announced that it had reached an agreement with MAS that will allow for the establishment of the GTR’s Asian data center in Singapore, expected to be operational by the close of 2012.
“Singapore, which does business in the OTC commodities market, has grown into one of the region’s main centers for banking and finance,” said Dan Cohen, DTCC Managing Director and Head of Global Government Relations. “In addition, officials have shown a keen interest in leading efforts to implement recommendations for OTC derivative reform laid forth by the G20 and the Financial Stability Board.”
In February, MAS issued a public consultation on its proposed regulatory framework for OTC derivatives and is now in the process of incorporating comments into draft legislation that will support the framework.
MAS is expected to issue a separate consultation on trade reporting in the near future, with a goal of issuing its new framework for trade repositories by the fourth quarter of 2012 and finalizing its derivatives legislation by the close of the year.
Japan: reporting to a third party
Japan – traditionally the most active Asian market with regards to OTC interest rate derivatives – was the first regional player to finalize financial reform legislation when it successfully amended its Financial Instruments and Exchange Act (FIEA) in May 2010. Under the new legislative framework, the Japanese Financial Services Authority (J-FSA) was given authority to regulate OTC derivatives, and it is expected that the J-FSA will fully implement its new regulatory regime by year-end.
The new regime subjects OTC derivatives trades to a mandatory reporting requirement, which requires that trades be reported to the J-FSA or to a delegated third-party trade repository.
After a series of high-level meetings with officials from the J-FSA, the Bank of Japan and representatives from the National Diet (Japan’s legislative body), DTCC is poised to establish a Japanese Trade Repository subsidiary to serve as the trade repository for the Japanese derivatives markets. The arrangement gives local supervisors complete access to Japanese transaction data, while allowing the data to be aggregated in DTCC’s GTR complex.
Hong Kong: independent repository
Hong Kong is another Asian jurisdiction in which OTC derivatives reform is quickly taking shape. Its primary regulators, the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC), issued a consultation paper on a proposed regulatory regime in late 2011, and are now in the process of developing the standards that will serve as the basis for this jurisdiction’s new legal framework for OTC derivatives.
Hong Kong intends to require mandatory clearing and reporting for most OTC derivatives products, though the HKMA and SFC have indicated that Hong Kong will pursue a phased approach to which products are subject to these requirements. It is expected that Hong Kong will formally adopt its new regulations by the end of 2012.
In its consultation paper, the HKMA announced that it would be developing its own repository for local trades, with a significant focus on renminbi foreign exchange products. The HKMA plans to begin testing its reporting system by the end of 2012 and go live by the middle of 2013.
DTCC has maintained consistent contact with both the HKMA and SFC in an effort to harmonize the jurisdiction’s new reporting regime with those developed in the U.S., Europe and other Asian nations. Hong Kong authorities have agreed in principle to a system whereby trades would be reported through DTCC, serving as an industry “agent” to the Hong Kong repository and allowing for the collection and aggregation of a global data set while permitting Hong Kong to maintain local data control. @