HKEx conducts risk management consultation for reforms

Consultation addresses the need for the exchange to weigh in proposals to improve its risk management measures and to bring them at par with international standards.

Hong Kong Exchanges & Clearing on Friday published a consultation paper seeking views on reforming the risk management framework of clearing houses.

HKEx Chief Executive Charles Li said the defaults of Lehman Brothers’ entities in 2008 underlined the need for HKEx to assess ways to enhance the robustness of its risk management measures and to bring them into line with international standards.

HKEx has reviewed its clearing houses’ risk management with particular focus on stress testing assumptions and whether there are sufficient financial resources to support the long-term growth of its securities and derivatives markets.

The review was conducted with reference to the main international standards setting bodies, the Technical Committee of the International Organisation of Securities Commissions and the Committee on Payment & Settlement Systems.

“We placed great emphasis in ensuring our proposals are fair, sustainable and meet or exceed international standards. We have also taken into consideration the characteristics and historical volatility of our markets,” Mr Li said.

The main proposals are to:

• introduce a standard margin system and a Dynamic Guarantee Fund at the Hong Kong Securities & Clearing Company;
• revise certain price movement assumptions in the clearing houses’ stress testing;
• revise the counterparty default assumption in the stress testing; and,
• revise the collateral assumptions at HKFE Clearing Corporation and the SEHK Options Clearing House.

The consultation closes October 28.