Joint consultation on changes to the OTC derivative Clearing Rules

In view of the global benchmark rate reform and the transitioning away from inter-bank offered rates (IBORs) to alternative reference rates (ARRs), the Securities and Futures Commission of Hong Kong (SFC) and the Hong Kong Monetary Authority (HKMA) have launched a joint consultation on proposed revisions to the Securities and Futures (OTC Derivative Transactions – Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules.
Specifically, the two regulators seek to amend Schedule 1 of the rules setting out the OTC derivatives subject to the central clearing requirement, once the clearing threshold is reached. They thereby propose to eliminate all LIBOR referencing swaps and EONIA (Euro OverNight Index Average) referencing swaps as these rates have either ceased to exist, ceased to be representative, or will be terminated in the near future.
Additionally, the two regulators propose to implement new clearing requirements for the following swaps transactions:
– JPY – TONA (Tokyo Overnight Average Rate) with tenors from seven days to 30 years;
– EUR – €STR (Euro Short-Term Rate) with tenors from seven days to three years;
– HKD – HONIA (HKD Overnight Index Average) with tenors from seven days to ten years; and
– USD – SOFR (Secured Overnight Financing Rate) with tenors from seven days to 50 years.
Furthermore, the SFC and HKMA propose to revise the obligation to clear transactions referencing GBP – SONIA (Sterling Overnight Index Average) to include all overnight index swaps (OIS) with tenors ranging from seven days to 50 years. The proposed revisions are illustrated in below tables.
Table 1 through 3 – Proposed changes to schedule 1 including OTC-instruments subject to the central clearing obligation