HONG KONG Dec 6 Hong Kong, Singapore and
Australia will introduce strict new rules for trading
over-the-counter (OTC) derivatives on March 1, as the three
jurisdictions look to implement international reforms drawn-up
in the wake of the 2008-2009 global financial crisis, regulators
said on Tuesday.
The global rules, which will require dealers to post and
collect collateral or "margin" against OTC trades, are set to
dramatically raise the cost of trading in the $500 trillion
global swaps market.
The Hong Kong Monetary Authority (HKMA), the Monetary
Authority of Singapore (MAS), and the Australian Prudential
Regulation Authority (APRA) said in notices published on their
websites on Tuesday they would each phase-in the new margining
requirements as of March 1 with a six-month implementation
Following the financial crisis, global regulators drew up
rules to increase transparency and reduce risks in the OTC
derivatives market, which was largely responsible for the
collapse of Lehman Brothers and bringing insurance giant AIG to
These included pushing some OTC trades onto exchange-like
platforms and through clearing houses which guarantee payment in
the event either party defaults. The rules aim to secure trades
that are too complex or illiquid for exchanges and clearing
houses to handle.
The global cost of funding the margin rules is likely to
ultimately exceed $500 billion, according to U.S and European
The United States and Japan introduced the rules in
September, sparking some initial trading disruption.
Hong Kong, Singapore and Australia held off in order to
align with the European Union, which is expected to finalise its
Regulators hope to align the implementation timeframe to
reduce the risk of market dislocation caused by different
dealers having to comply with different rules.
The new rules require banks to make significant changes to
their trading technology, operations and client agreements, with
some industry insiders warning the March timetable is tight.
Tuesday's announcements offered the industry long-awaited
clarity on the timeframe for the rules, said Keith Noyes,
Regional Director, Asia Pacific at the International Swaps and
Derivatives Association (ISDA), which has been closely involved
in industry discussions with regulators regarding the rules.
"ISDA can now work on finalising the vital documentation
required by counterparties to trade under the new rules. The
fact that the regulators have proposed a six-month transition
period from March 1 will give the local market participants much
needed time to negotiate and implement the changes."
(Reporting by Michelle Price; Editing by Vyas Mohan)