Circular on Clearing Amendment Rules

On October 27, 2023, the Securities and Futures Commission of Hong Kong (SFC) published a circular in view of the gazettal of the Securities and Futures (OTC Derivative Transactions—Clearing and Record Keeping Obligations and Designation of Central Counterparties) (Amendment) Rules 2023 which are scheduled to come into force on July 1, 2024 once passed by the Legislative Council.
To recall, the amendments to the clearing rules follow a corresponding consultation which was concluded earlier this year (EventID 22828) and which
– stipulates that all LIBOR referencing swaps and EONIA (Euro OverNight Index Average) referencing swaps be eliminated from the clearing obligation as these rates have either ceased to exist, ceased to be representative, or will be terminated in the near future.
– introduces 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.
– revises 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 revisions are illustrated in below tables (as taken from the consultation conclusion paper).
Table 1 through 3 – Proposed changes to schedule 1 including OTC-instruments subject to the central clearing obligation

In this circular now, the SFC reminds market participants to be aware that when their average total position in OTC derivatives over the prescribed calculation periods reaches the associated clearing threshold (USD 20 billion), any OTC derivative transaction they initiate from the corresponding day onward must adhere to central clearing requirements. Licensed persons are responsible for ensuring compliance with these clearing rules.