HK regulator proposes additional requirements for futures brokers
Hong Kong’s Securities and Futures Commission (SFC) today launched a consultation on proposed risk management guidelines for licensed futures brokers.
The proposed guidelines mainly include qualitative requirements for the control and management of key risks arising from futures dealing activities. Key proposals include requiring futures brokers to set prudent client risk limits and comply with additional requirements relating to commodity futures.
They would also be required to conduct due diligence reviews of executing or clearing agents, safeguard client assets more properly, and put in place controls relating to trading in futures markets and handling client assets outside Hong Kong.
In addition, in respect of clients who failed to meet two margin calls by the settlement deadline without reasonable excuse in the preceding 30 calendar days, futures brokers would be required to insist on collecting outstanding margin calls, and, where applicable, follow their in-house policies towards forced liquidation. Futures brokers would also be required to set thresholds for concessionary margining.
Most of the requirements incorporate existing industry risk management practices or elaborate on the practical application of existing requirements in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
“Recent shocks in the financial and commodity futures markets have underscored the challenges futures brokers face in times of market volatility,” said Ms Julia Leung, the SFC’s Deputy Chief Executive Officer and Executive Director of Intermediaries. “The proposed risk management guidelines aim to provide timely guidance to futures brokers to help them better manage the risks relating to their business.”
This consultation follows a fact-finding exercise the SFC conducted in 2021 to survey the futures brokers’ business and risk management practices. Furthermore, the key proposals are aligned with regulations in major jurisdictions and have benefitted from comments and views collected from a wide spectrum of market practitioners in recent months.