Interim reporting requirements for OTC derivative transactions

Our Ref: B9/135C
3 December 2013
The Chief Executive
All Licensed Banks
Dear Sir/Madam,
Interim reporting requirements for OTC derivative transactions I refer to our letter of 28 June 2013 concerning the above and write to inform you that the grace period referred to in that letter for licensed banks to set up their system linkage with the trade depository operated by the HKMA (HKTR) will be extended to 15 December 2013 from 8 December 2013 in respect of the backloading of reportable transactions conducted before 9 December 2013. According to the original requirements set out in our letter of 28 June 2013, after the expiry of the grace period on 8 December 2013, all reportable transactions subsequently conducted by banks on or after 9 December 2013, including any post-trade business events associated with those transactions, must be reported to the HKTR on a T+2 basis. In addition, reportable transactions that are conducted before 9 December 2013, but are backloaded on a date between 9 December 2013 and 4 February 2014, must include both the day-end positions as of 9 December 2013 and all business events subsequent to 9 December 2013 up to the reporting date. If those transactions can be backloaded before 9 December 2013, banks are only required to report day-end positions as of the reporting date. Nevertheless, based on industry feedback and judging from the progress made by banks on the backloading of reportable transactions so far, we anticipate that a large volume of transactions will be submitted to the HKTR for backloading purposes towards the end of the grace period. The extension of the grace period from 8 December to 15 December is intended to spread out (at least to some degree) the submission to the HKTR of transactions to be backloaded and avoid any potential disruption in the processing of such transactions. It should however be noted that the extension, which relates solely to backloading, will not affect the reporting of transactions conducted on or after 9 December 2013 (and any post-trade business events associated with the transactions), which must still be reported to the HKTR on a T+2 basis as set out in our letter of 28 June 2013. As a result of the extension, the requirements for the backloading of reportable transactions conducted on or before 8 December 2013, and which remain outstanding on the reporting date, are revised as follows:

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(i) trade reports that are made on or before 15 December 2013 should include the day-end positions as of the reporting date only; and (ii) trade reports that are made on or after 16 December 2013 (but no later than 4 February
2014) should include both the day-end positions as of 16 December 2013 and all
business events subsequent to 16 December 2013 up to the reporting date. Attached is a revised Appendix 3 to our letter of 28 June 2013 to illustrate the effect of the extension of the grace period. Banks envisaging backloading a large volume of transactions are requested to contact the HKTR on 8100-3115 as soon as possible to schedule a time to do so. Should your bank have any questions regarding this letter, please contact Lionel Wai on 2878-1279 or Andy Cheung on 2878-1022. Yours faithfully, Karen Kemp Executive Director (Banking Policy Division) Encl.
cc. Financial Services and the Treasury Bureau
(Attention: Mr Jackie Liu)

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Appendix 3
(revised 3 December 2013)
Summary of Transitional Arrangements for Reporting of OTC Derivative Transactions Reportable transactions conducted (1) before, but which remain outstanding at the day-end of, 5 August 2013 or (2) between 5 August and 8 December 2013 Reportable transactions conducted from 9 December 2013

• Except for matured or fully terminated transactions, trade reports for the
  transactions are required to be made no later than 4 February 2014 in the following manner:- (i) where the reports are made between 5 August 2013 and 15 December 2013, the reporting bank is required to include the day-end positions as of the reporting date only. In other words, it is not necessary to report historical business events that happened before the reporting date; (ii) where the reports are made between 16 December 2013 and 4 February 2014, the reporting bank is required to include both the day-end positions as of 16 December 2013 and all business events subsequent to 16 December 2013 up to the reporting date.
• Once the reporting referred to above is completed, any subsequent business
  events of the reported transactions should be reported within two business days of the occurrence of the business events.
• Reporting of the transactions, and any post-trade business
  events, should be reported within two business days of the occurrence of the transactions or events, as the case may be.