To make Hong Kong even more attractive, the city’s Securities and Futures Commission is planning a revamp of its derivatives rules, a person familiar with the effort said. The regulator hired Nanfeng Sun, a former Bank of America Corp. quant who specializes in risk models, to vet banks’ submissions, another person said. Hong Kong’s monetary authority is preparing for an increase in derivatives-related oversight, a spokeswoman said.
While Hong Kong is already a hub for derivatives dealing, banks and other financial institutions have typically booked their Asian transactions on the balance sheets of units in Europe or the U.S. That used to make sense: a central hub produced economies of scale, and Western regulations were seen as more favorable. [...]
More firms are likely to move parts of their derivatives books to Hong Kong if the city tweaks its rules to allow so-called advanced risk models, which would reduce capital requirements, industry participants said. Increased derivatives booking could bring more revenue to the city, as well as new jobs in areas including risk management, according to the Hong Kong Financial Services Development Council, a government advisory body.
The person familiar with the SFC’s plans said it will soon release a public consultation on over-the-counter derivatives covering topics from valuation to record keeping. The proposed changes would enable firms to more easily book their trades in Hong Kong, the person said.
The SFC consultation “could have a positive impact for Hong Kong as a major derivatives booking hub,” said Terry Yang, a partner in the financial services practice at Clifford Chance LLP. [...]
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