FAQs – OTC derivatives regime: FAQs on the operation and implementation of the mandatory clearing regime

The Securities and Futures Commission of Hong Kong (SFC) has published a new version of its frequently asked questions (FAQs) on the Implementation and Operation of the Mandatory Clearing Regime. They are intended to „help market participants better understand their obligations and responsibilities under the Clearing Rules“ and help them comply with the regime.
Generally speaking, the FAQ cover issues such as who is subject to clearing and record keeping obligations, what triggers the central clearing obligation, or which instruments or transactions are subject to clearing requirements. This latest revised version contains an amendment to question 6 in the FAQ relating to the calculation period to determine the central clearing requirement. The revised question reads as follows – as quoted:
Q6: What is a calculation period and what is a prescribed day in relation to a calculation period?
A calculation period is the period in which a person’s applicable position in OTC derivatives is calculated to determine whether it has reached the clearing threshold. Please see Q8 to Q10 for further information. There are multiple calculation periods. Each calculation period is three months in duration and there is in general a six-month interval between the start of one calculation period and the start of the next one. We may extend this six-month gap in future as appropriate.
A prescribed day in relation to a calculation period is the day which is seven months after the end of the calculation period. For a person who has reached the clearing threshold for the first time in a calculation period, the clearing obligation will only apply to future transactions entered into on or after the prescribed day for that calculation period. This is to allow one month for the calculation of the applicable position and six months for setting up the infrastructure and completing the documentation and on-boarding exercise for central clearing.
When mandatory clearing was implemented, there were four calculation periods specified in Schedule 2 to the Clearing Rules, each with its corresponding prescribed day. The first calculation period ran from 1 September 2016 to 30 November 2016. The first prescribed day was 1 July 2017, seven months after 30 November 2016. This explains the 10-month gap between the commencement of the Clearing Rules and the first date a person may be required to clear a specified OTC derivative transaction.
Over time, we have since added new calculation periods to Schedule 2 to ensure that the Clearing Rules continue to operate effectively. The current list of the calculation periods and their corresponding prescribed days, as set out in Schedule 2 to the Clearing Rules, can be found at this link: https://www.elegislation.gov.hk/hk/cap571AN.