HKMA mulls over charging for mandatory trade reporting service

The Hong Kong Monetary Authority has begun discussions with OTC derivative market players on whether to charge for use of its trade reporting service

The Hong Kong Monetary Authority (HKMA) is considering charging market participants a levy to use its trade reporting service once the regulator’s over-the-counter derivatives trade repository is fully operational, it has confirmed to Asia Risk.

The HKMA first raised the possibility that the service would carry a levy in mid-November during meetings with the Treasury Markets Association’s trade repository working group, although discussions are at a very early stage.

The regulatory body intends to continue discussions on the subject with industry players over the coming months. No decision is due before the updated financial legislative framework has been put in place for the OTC derivatives markets in Hong Kong, for which the conclusions to several consultation papers are still pending.

“On the reporting service, the HKMA has not yet decided whether to charge and if so, the level of charges,” says Esmond Lee, executive director, financial infrastructure, at the HKMA.

In September, the HKMA announced that it planned to begin offering a matching and confirmation service through its trade repository for OTC derivatives players this month, establishing a link between its trade repository and the Hong Kong Exchange central counterparty (CCP) for passing eligible OTC derivatives transactions to the CCP for clearing.

The regulator made it clear at the time that there would be a charge for this service although it has still not decided on the amount.

“It is the intention of the HKMA to charge users of the matching and confirmation service, but the exact level of charge is still being considered by the HKMA. The HKMA does not intend to levy any charges before the mandatory clearing requirement commences,” says Lee.

Whereas the matching service is viewed as a commercial venture, with market participants able to choose between operators, the reporting service will constitute a legal obligation for financial firms. As such, should the HKMA decide to make market participants pay for the trade reporting service, it will be aimed at recouping operating costs.

They HKMA is understood to be waiting for the legislation to be clearer and then to have more discussions with the industry to gain its perspective. The regulator will also make reference to overseas trade repositories and their charging schemes, not to use these as a pricing point but to see what will be reasonable if it decides to charge.

The HKMA began work on constructing its own trade repository in 2011 and is expected to launch the reporting service in the second quarter of 2013, after testing an interface with the Depository Trust & Clearing Corporation (DTCC), which runs trade repositories for derivatives in several asset classes, early next year.