Hong Kong SFC to Move Ahead with Position Limit Changes

Hong Kong's Securities and Futures Commission ("SFC") has announced that it will implement proposed changes to the position limit regime in the territory, following a consultation on the matter in September last year. 

In a set of consultation conclusions published on 21 March the SFC said the proposals – which include a 300 percent cap on the excess position limit that may be authorised by the SFC, a statutory position limit of 150,000 contracts for stock options as well as new excess position limits for index arbitrage activities, asset managers and market makers of exchange-traded funds ("ETFs") – would come into effect on 1 June, subject to the legislative process.

Following consultation responses, the SFC said the minimum "assets under management" required to be eligible for the proposed asset manager excess position limit would be lowered from HK$100 billion to HK$80 billion.

Under the position limit regime, an exchange participant or its affiliate may seek authorisation from the SFC to hold or control Hang Seng Index and Hang Seng China Enterprises 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 proposed enhancements address market participants’ business needs and encourage them to conduct more of their derivative activities on exchange markets," SFC Chief Executive Ashley Alder said at the launch of the consultation in September last year. "By improving market efficiency and enhancing liquidity, this will help to promote Hong Kong as a risk management centre."

Last year, the SFC reprimanded and fined HSBC HK$2.5 million for regulatory breaches and internal control failings related to position limit failures in the futures and options contract market. It said HSBC failed to identify its position limit breaches promptly, that the bank showed a lack of adequate knowledge internally regarding its position limits and the state of compliance with the relevant regulatory requirements, and that it lacked policies or procedures for position limit monitoring of futures and options contracts and failed to implement any position monitoring control over these contracts. Hong Kong's Securities and Futures Commission ("SFC") has announced that it will implement proposed changes to the position limit regime in the territory, following a consultation on the matter in September last year. 

In a set of consultation conclusions published on 21 March, the SFC said the proposals – which include a 300 percent cap on the excess position limit that may be authorized by the SFC, a statutory position limit of 150,000 contracts for stock options as well as new excess position limits for index arbitrage activities, asset managers and market makers of exchange-traded funds ("ETFs") – would come into effect on 1 June, subject to the legislative process.

Following consultation responses, the SFC said the minimum "assets under management" required to be eligible for the proposed asset manager excess position limit would be lowered from HK$100 billion to HK$80 billion.

Under the position limit regime, an exchange participant or its affiliate may seek authorisation from the SFC to hold or control Hang Seng Index and Hang Seng China Enterprises 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 proposed enhancements address market participants’ business needs and encourage them to conduct more of their derivative activities on exchange markets," SFC Chief Executive Ashley Alder said at the launch of the consultation in September last year. "By improving market efficiency and enhancing liquidity, this will help to promote Hong Kong as a risk management centre."

Last year, the SFC reprimanded and fined HSBC HK$2.5 million for regulatory breaches and internal control failings related to position limit failures in the futures and options contract market. It said HSBC failed to identify its position limit breaches promptly, that the bank showed a lack of adequate knowledge internally regarding its position limits and the state of compliance with the relevant regulatory requirements, and that it lacked policies or procedures for position limit monitoring of futures and options contracts and failed to implement any position monitoring control over these contracts.

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North Asia editor for Thomson Reuters Regulatory Intelligence. He is based in Hong Kong.