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    HKMA Rewrite:
    SFC and HKMA Unite in Pursuit of Aligning to Global Standards

    Published: July 16, 2024

    March 2024 saw the ‘Hong Kong Monetary Authority’ (HKMA) and ‘Securities and Futures Commision’ (SFC) conclude their joint consultation on enhancements to the OTC derivatives reporting regime. This is a continuation of ongoing efforts with the Government of Hong Kong Special Administrative Region and relevant stakeholders response to the 2008 financial crisis. It is also aligning with the G20 commitment to reform OTC derivatives markets, aiming to enhance transparency, financial stability, and reduce operational and systemic risk.

    Over time, HKMA has implemented several reporting, clearing and enhancements in 5 key assets classes; namely Interest Rates, Foreign Exchange, Credit, Equities and Commodities.

    Key changes announced in the recent HKMA & SFC consultation

    Key Changes in HKMA Rewrite What happens after 29th September 2025
    Unique Transaction Identifier (UTI) UTI will be mandated for reporting new trades, including their life-cycle events and valuation, occurring after the implementation date. The UTI Technical Guidance will be adopted for approaches, format, structure, and generation logic. The UTI generation steps will follow the UTI Technical Guidance (TG Waterfall).
    Unique Product Identifier (UPI) Reporting entities must provide the UPI for derivatives in each reportable transaction submitted to HKTR. HKMA will monitor its development and align practices with other regulators, maintaining specific product-related data fields in reporting requirements.
    Critical Data Elements (CDE) Where certain data fields are not covered by the CDE Technical Guidance but are required in other jurisdictions, HKMA intends to align their definitions as closely as possible with global standards to facilitate data aggregation and reporting. The proposed data elements will replace the current set upon the CDE implementation in Hong Kong.
    Adoption of ISO-20022 Standard Adopting the ISO 20022 XML message standard is crucial for harmonization efforts. HKMA and SFC propose to adopt ISO 20022 XML format for OTC derivatives reporting to HKTR concurrently with the implementation of UTI, UPI, and CDE in a “big bang” approach on the implementation date.

    Newly Introduced Data Elements in
    HKMA Rewrite

    Similarly to other rewrites, there is an increase on the number of reportable fields. More specifically, in comparison to HKMA there are 33 additional data elements proposed for HKMA Rewrite in relation to 4 different topics namely (select each theme to view the fields):

    No. Field Name
    37 Collateral portfolio indicator
    38 Collateral portfolio code
    39 Initial margin posted by the counterparty 1 (pre haircut)
    40 Initial margin posted by the counterparty 1 (post haircut)
    41 Currency of initial margin posted
    42 Initial margin collected by the counterparty 1 (pre haircut)
    43 Initial margin collected by the counterparty 1 (post haircut)
    44 Currency of initial margin collected
    45 Variation margin posted by the counterparty 1 (pre haircut)
    46 Variation margin posted by the counterparty 1 (post haircut)
    47 Currency of variation margin posted
    48 Variation margin collected by the counterparty 1 (pre haircut)
    49 Variation margin collected by the counterparty 1 (post haircut)
    50 Currency of variation margin collected
    51 Excess collateral posted by the counterparty 1
    52 Currency of excess collateral posted
    53 Excess collateral collected by the counterparty 1
    54 Currency of excess collateral collected
    55 Collateralisation category
    156 Initial margin collateral portfolio code
    157 Portfolio containing non-reportable component indicator
    158 Variation margin collateral portfolio code
    192 Collateral timestamp
    No. Field Name
    9 Direction 1
    10 Direction 2 – Leg 1
    11 Direction 2 – Leg 2
    No. Field Name
    201 Secondary transaction identifier
    202 Lower or only barrier
    203 Upper barrier
    No. Field Name
    136 Action type
    137 Event type
    138 Event timestamp
    139 Event identifier

    Treatment of Legacy Transactions

    A comparison of how legacy trades are treated in the different Jurisdictions:

    Reporting of Legacy Transactions Amendment of Legacy Trades
    HKMA Rewrite Require the re-reporting of live legacy transactions and adopt the new reporting format only if the transaction has a maturity of more than one year as at 25th September 2025. Amendments to legacy transactions will need to be reported in the new reporting format within two business days.
    MAS Rewrite Re-reporting of OTC derivatives is not required for contracts that have a maturity of less than 6 months from October 2024. Amendments made to legacy trades should be made under the new schema.
    ASIC Rewrite OTC Derivatives with an Expiration date later than 20 October 2025 and Termination before 20 April 2025 will only be required to be re-reported. Only the information already recorded in electronic form needs to be re-reported.

    Expected Challenges

    Click for more information

    Handling of big data

    Optimising data collection processes and possibly investing in new technological solutions will be crucial to guarantee accurate reporting.

    Compliance hurdles

    Significant adjustments to internal processes. This includes updating compliance procedures, risk management frameworks and reporting.

    Operational challenges

    As experienced with other jurisdictions’ proposed waterfall approach which is applied to determine which counterparty is required to generate a UTI.

    Technical challenges

    This is likely when implementing UPI across all products. For example, the industry is facing challenges in obtaining UPI for products with equity underliers that do not have ISIN.

    Having two parallel systems

    Members envisage challenges and cost burden maintaining two parallel production systems to cater to the reporting of legacy trades with maturity within one year as at the implementation date in the legacy template and new trades in the ISO XML format.

    How can First Derivative Help?

    Our highly skilled consultants at First Derivative can help you with regulation interpretation, implementation and support you with overcoming your regulatory obstacles. We provide extensive expertise in many areas such as PM, PMO, BA and QA and would endeavor to lighten your load and help you on the road to success. First Derivative is ready and waiting for your call.

    Contact us today

    Victoria Irojah

    Victoria Irojah
    Managing Consultant
    First Derivative

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