SFC Launches Consultation On Amending Position Limits Regime

by Mary Swire, for LawAndTax-News.com, Hong Kong

22 May 2007

The Hong Kong Securities and Futures Commission (SFC) on Friday announced proposals to introduce greater flexibility to the holding limits for Hang Seng Index and H-share Index futures and options contracts, in a move that aims to further promote the growth of the markets.

The SFC last week published a consultation paper on proposed amendments to the Securities and Futures (Contracts Limits and Reportable Positions) Rules (CLRP Rules) and corresponding amendments to the Guidance Note on Position Limits and Large Open Position Reporting Requirements.

The CLRP Rules prescribe limits (position limits) on the number of futures contracts or options contracts that may be held or controlled by a person and require a person holding or controlling a reportable position to notify the recognised exchange company.

Position limits are tools for the surveillance and regulation of the derivative markets. They help prevent the build up of excessive and over-concentrated positions which may pose a threat to the orderly functioning and financial stability of the markets.

The proposed amendments empower the SFC to authorise Exchange Participants or their affiliates to exceed the position limits for Hang Seng Index and H-share Index futures and options contracts by up to 50% where the limits are not enough to enable them to serve their clients’ needs.

The proposed amendments form stage two of a two-stage proposal to adjust the position limits. The first stage consisted of adjusting the position limits for H-share Index futures and options contracts. Amendments to implement that adjustment came into effect on 30 March 2007.

The SFC believes that the proposed changes will better meet market needs and promote the growth of our futures and options markets. They will also bring a number of benefits, including:

• Allowing market participants to establish positions in the HKEx market and thus facilitating greater transparency and enabling the SFC to better assess the potential implications on market stability; and
• Enhancing the liquidity of our market, thereby helping to maintain Hong Kong’s leading position in the face of competition from other exchanges keen to develop derivative products on Mainland related equities.

The SFC considers that by introducing an authorisation power rather than increasing the position limits across the board, the planned amendments enable it to address genuine market needs for excess positions without compromising market stability.

The public is invited to submit comments in writing before close of business on 18 June 2007.

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