Consultation on Proposed Enhancements to the Position Limit Regime and the Associated Amendments

The Securities and Futures Commission (“SFC”) launched a consultation in late September on “Proposed Enhancements to the Position Limit Regime and the Associated Amendments to the Securities and Futures (Contracts Limits and Reportable Positions) Rules and Guidance Note on Position Limits and Large Open Position Reporting Requirements”.

Under the existing position limit regime, an exchange participant or its affiliate may seek authorisation from the SFC to hold or control Hang Seng Index (“HSI”) and Hang Seng China Enterprises (H-shares) Index futures and options contracts in excess of the statutory limit for the purposes of hedging risks that arise in the course of providing services to clients. The current cap on the excess that may be authorised by the SFC is 50 percent of the statutory limit.

The SFC proposed enhancements to the above position limit regime: it suggested that, among other things, the cap on the excess position limit that may be authorised by the SFC would increase from 50 percent to 300 percent of the statutory position limit. In addition, new excess position limits were proposed for index arbitrage activities, asset managers and market makers of exchange-traded funds.

The thinking underlining these proposed enhancements was said to address market participants’ business needs and to encourage them to conduct more of their derivative activities on exchange markets.

The Investment Products and Financial Services Committee (the “Committee”) has assisted The Council in reviewing the above consultation paper. The Law Society generally agreed with or had no particular views on those consultation questions put forward in the consultation paper. Those views were summarised in a submission, which could be found at http://www.hklawsoc.org.hk/pub_e/news/submissions/20161110.pdf.

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