Hong Kong’s Securities and Futures Commission (SFC) launched a consultation paper today on proposed risk management guidelines for licensed futures brokers.
The new guidelines mainly focus on qualitative requirements for controlling and managing key risks concerning futures dealing activities. The proposition includes brokers setting prudent client risk limits and further complying with additional requirements relating to commodity futures.
In addition, brokers would also need to conduct due diligence reviews of executing or clearing agents, strengthen client assets security and the controls on handling client assets outside Hong Kong.
Furthermore, futures brokers would be required to insist on collecting outstanding margin calls from clients who failed to meet two margin calls by the settlement deadline in the preceding 30 calendar days. Where applicable, futures brokers will also be required to follow their in-house policies towards forced liquidation and they would also need to set thresholds for concessionary margining.
Julia Leung, the SFC’s Deputy Chief Executive Officer and Executive Director of Intermediaries, said:
Recent shocks in the financial and commodity futures markets have underscored the challenges futures brokers face in times of market volatility. The proposed risk management guidelines aim to provide timely guidance to futures brokers to help them better manage the risks relating to their business.
The consultation paper comes after the regulator’s ‘fact-finding exercise’ conducted in 2021. SFC further noted that the guidelines were prepared by considering regulations in major jurisdictions and collecting feedback from a broad spectrum of market participants.
