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Digital Subscriptions > The Hedge Fund Journal > Issue 117 - October 2016 > Expanded Licensing Regime For OTC Transactions

Expanded Licensing Regime For OTC Transactions

New Hong Kong regulations affecting asset managers

Following a two year consultation period, the Hong Kong Securities and Futures Commision (“SFC”) issued a Circular in October 2015 (“Circular”) setting out an expanded licensing regime covering over-the-counter (“OTC”) derivative transactions and products1 (“Expanded OTC Regime”).

Amongst other regulatory changes summarized in the Circular is the SFC’s conclusion that certain activities relating to OTC derivatives (such as the management of OTC derivatives) are to be considered as “regulated activities”, and the corresponding implementation of an updated licensing regime to cover the carrying on, in Hong Kong, of such activities.

Expanded OTC regime in Hong Kong

Under the Expanded OTC Regime, the scope of the existing regulated activity of “asset management” (Type 9 Regulated Activity for the purpose of the Hong Kong Securities and Futures Ordinance (Cap. 571) (“SFO”) has been revised. This now provides for the expansion of the existing Type 9 license to cover asset management activities with respect to OTC derivative products (alongside the more traditional “securities and futures contracts” asset management).

At the same time, separate amendments to the SFO were made in order to create the proposed new regulated activities of “dealing or advising on OTC derivatives products” (Type 11) and “providing client clearing services for OTC derivative transactions” (Type 12), as well as to expand the scope of the existing regulated activity of “providing automated trading services” (Type 7) to cover OTC derivative transactions or products.

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