The Securities and Futures Commission (SFC) today published consultation conclusions and began a further consultation on proposed changes to the position limit regime.

Considering market feedback to the consultation (Note 1), the SFC concluded to proceed with some of the proposals to better align the position limit regime with the SFC’s regulatory policies and objectives in light of recent developments in Hong Kong’s derivatives market. These include expanding the list of specified contracts and introducing an excess position limit regime for clearing participants (Note 2).

The SFC is launching a further consultation on additional amendments related to the application of position limits and reporting requirements to funds (Note 3). It also proposes to revise the statutory position limits for stock options and stock futures contracts and remove the additional position limits for mini stock index futures and options contracts (Note 4).

“The primary objective of establishing statutory position limits is to contain systemic risk in the Hong Kong market by limiting large positions,” said Mr Ashley Alder, the SFC’s Chief Executive Officer. “The position limit regime is crucial in maintaining the stability of the Hong Kong financial market and it should be regularly updated to reflect market developments.”

Separately, after a carefully considered policy review, to facilitate market development, the SFC will adopt a separate regulatory approach for international futures and options contracts by not prescribing the statutory position limits and large open position reporting levels for these contracts (excluding Mainland-related and Renminbi currency contracts).

The public is invited to submit their comments by 23 December 2022 via the SFC website (www.sfc.hk), by email to position-limit@sfc.hk, by post or by fax to 2521 7917.

Notes:

1. 1.The consultation began on 26 April 2022 and ended on 27 June 2022.
2. 2.The SFC decided to proceed with the proposals to (1) expand the list of specified contracts; (2) prescribe position limits and reporting levels for some new contracts; (3) increase the position limit for Renminbi currency contracts; (4) impose large open position reporting requirements for holiday trading contracts; (5) clarify the circumstances under which a clearing participant is not regarded as having discretion over its clients’ position; and (6) introduce an excess position limit regime for clearing participants.
3. 3.The further proposed changes would: (1) impose additional obligations on asset managers who manage funds or sub-funds of umbrella funds; and (2) provide that if trustees have measures in place to monitor closely their asset managers’ compliance with the requirements in the Securities and Futures (Contracts Limits and Reportable Positions) Rules, the SFC will consider that the trustees have discharged their obligations under these rules.   
4. 4.These proposals aim to facilitate the implementation of Hong Kong Exchanges and Clearing Limited’s (HKEX) proposals to enhance its exchange-level position limit models. For details, please refer to HKEX’s related consultation and consultation conclusions.