Hong Kong's Monetary Authority and Securities and Futures Commission have today released their joint policy towards mandatory reporting and related record-keeping obligations under the jurisdiction's new over-the-counter derivatives regime.

Proposals about certain aspects of the reporting regime were revised after taking into account market feedback. Highlights include:

• Daily valuation reporting.The requirement to submit daily valuation reports will be deferred to a later stage after additional consultation and discussion with market participants.
• Jurisdictions for masking relief. The previously proposed list of 18 jurisdictions for masking relief will remain unchanged.
• Markets and clearing houses to be prescribed. A further 15 operations will be added to the list of markets and clearing houses to be prescribed in view of market feedback. Products traded on and cleared through these operations will not be regarded as OTC derivatives and will lie outside the new regime.
• Definition of affiliate. The term “affiliate” will be amended to expressly exclude collective investment schemes (ie, funds). This will better reflect the policy intention not to include the reporting obligation of fund managers in the current phase.
• Record-keeping obligations. Records will have to be readily accessible, but they need not be readily searchable and identifiable by reference to a particular transaction and counterparty. Also, it will no longer be a requirement to keep records which evidence communications and instructions that result in the transaction being executed.

The revised Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules are gazetted today and will be tabled before the Legislative Council on 20 May for so-called 'negative vetting.' A set of "frequently asked questions" is in draft form, although one suspects that they have not been asked frequently at all.

In  general, when a product type is specified for reporting for the first time, a concession period of 6 months will be allowed for everyone to set up, or upgrade, internal systems and system linkage with the HKTR, the relevant electronic reporting system, as  necessary, to comply with the reporting requirement in respect of that product type.