HKEx delays mandatory clearing

Clearing to start in July 2014.

Banks in Hong Kong have received a six-month grace period before they must finally start clearing by July 2014. Hong Kong Exchanges and Clearing or HKEx has postponed the introduction of mandatory over-the-counter derivatives clearing until January amid concerns about cross-border derivative rules and the recognition of foreign central counterparties.

Mandatory clearing was originally scheduled for October 2012. Sources said a bill will soon go to the Legislative Council that will be vetted over the next few months. The mandate comes into effect in January and firms will have a six-month grace period until July before they have to clear the mandated products.

Voluntary clearing, however, is scheduled to begin this June and it is anticipated that the 12 founding shareholder banks in HKEx's OTC Clear service may initially access the service.

Analysts noted that a lack of final rules across different countries has contributed to the delay. They said mandatory clearing for the European Market Infrastructure Regulation or Emir won’t begin until the first or second quarter of 2012, so some Asian countries don't want to jump the gun especially when Emir's cross border rules haven't been established.

Hong Kong's OTC clearing consultation concluded it should mandate clearing for non-deliverable forwards and interest rate swaps in HKD, CNH (offshore traded renminbi), USD and EUR and CNY non-deliverable swaps.

It stopped short, however, of imposing a location requirement that the trades have to be cleared in Hong Kong.