Dodd-Frank extraterritorial fears weigh in Hong Kong

The extra-territorial implications of Dodd-Frank weighed heavily on the minds of participants at the annual Hong Kong Treasury Market Association (“HKTMA”) forum. According to, Hong Kong Monetary Authority (“HKMA”) executive director for financial infrastructure Esmond Lee voiced his concern about Dodd-Frank central clearing requirements: “One of the [Dodd-Frank] exemptions, according to US colleagues, is for the Federal Reserve, US treasury and the Federal Reserve Bank of New York. This has caused concern among Asian and European colleagues. It means the Bank of England, ECB, HKMA and MAS [among others] will be non-exempted from Dodd-Frank. So, if dealing with a US entity, all these transactions will be centrally cleared and reported to a trade repository.”

Central clearing regulations would require Asian counterparties, including central banks, to post collateral and to publish trade information to a data repository. Few Asian sovereign entities are accustomed to posting collateral, and trade data is closely guarded.

But Mr. Lee’s worry may be premature. The CFTC and SEC have pushed back implementation of many¬† rules, including central clearing and reporting requirements, until the end of the year. Considering the clamor for harmonization and extra-territorial reform last month, regulators may be moved to cut down on requirements for foreign counterparties between now and December.

Furthermore, central clearing and reporting will likely come to Hong Kong and other Asian financial centers soon. Lee said that Hong Kong Exchanges and Clearing plans to open a Central Counterparty (CCP) to facilitate central clearing by 2013. Furthermore, according to Lee, the Hong Kong Monetary Authority will also introduce trade repositories covering a broad range of derivatives products, standardized and non-standardized swaps of all types: “Phase 2 of our trade repository project will probably include widening of product coverage, increasing functionality and promoting it to other banks outside Hong Kong. So while our mandatory requirements don’t cover that, these are value-added services…to become a genuine regional or even international trade repository.”

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