Derivatives Laws and Regulations 2026

Documentation and Formalities

1.1 Please provide an overview of the documentation (or framework of documentation) on which derivatives transactions are typically entered into in your jurisdiction. Please note whether there are variances in the documentation for certain types of derivatives transactions or counterparties; for example, differences between over-the-counter (“OTC”) and exchange-traded derivatives (“ETD”) or for particular asset classes.

In Hong Kong, derivatives transactions are typically documented using the framework of documentation published by the International Swaps and Derivatives Association (“ISDA”).

OTC derivatives are customised contracts entered directly between two counterparties. The 2002 ISDA Master Agreement (with such elections and designations made by parties by way of a Supplement) is now the market standard (though the 1992 version remains valid). A Credit Support Annex or Credit Support Deed is used where credit support is involved, and Confirmations are used to outline commercial and other deal-specific terms, which will all form part of the ISDA Master Agreement.

On the other hand, ETDs are standardised contracts traded on an exchange, and their documentation is usually based on the standard forms and following the rules and regulations of the appropriate exchanges, which ensures a more uniform approach to these ETD transactions.

Additionally, there may be variations in the documentation for particular asset classes, such as interest rate derivatives, credit derivatives, equity derivatives or ESG-linked derivatives. These variations would be reflected in ISDA’s product-specific definitions, standardised common amendments to ISDA derivatives documentation and bespoke confirmations that supplement the ISDA Master Agreements to cater to the unique features of each asset class.

ISDA’s published definitions for the key asset classes (namely interest rates, foreign exchange (“FX”), equities, credit and commodities) include the: 2021 ISDA Interest Rate Derivatives Definitions, refining the previous 2006 ISDA Definitions (though the 2006 Definitions still apply to legacy trades); ISDA FX and Currency Option Definitions, applicable to FX and currency option transactions; 2002 ISDA Equity Derivatives Definitions for equity derivatives transactions, such as equity swaps, options, and forwards; 2014 ISDA Credit Derivatives Definitions for credit derivatives transactions, such as credit default swaps and credit-linked notes; and ISDA Commodity Definitions, covering commodity derivatives transactions, such as commodity swaps, options, forwards, and futures.

Furthermore, on 28 February 2022, ISDA published the 2022 ISDA Securities Financing Transactions (“SFT”) Definitions and the SFT Schedule Provisions, allowing derivatives and SFT transactions that include derivatives, repos and stock loans to be documented under a single ISDA Master Agreement and enabling these instruments (previously governed by separate contracts) to be governed by a single close-out netting arrangement under the ISDA Master Agreement. The 2022 SFT Definitions are designed for hybrid transactions involving repo/derivatives and can be adopted in highly bespoke derivatives transactions involving repos and stock lending.

In 2024, ISDA launched the ISDA Digital Asset Derivatives Definitions. These definitions initially cover non-deliverable digital asset forwards and options referencing Bitcoin and Ether, and are intended for use in confirmations of individual transactions governed by the ISDA Master Agreement.

This chapter focuses on OTC derivatives unless otherwise expressly stated.

1.2 Are there any particular documentary or execution requirements in your jurisdiction? For example, requirements as to notaries, number of signatories, or corporate authorisations.

For a private company entering OTC derivatives in Hong Kong, there are no derivative-specific documentary or execution requirements under the law, as long as they comply with the company’s constitutional documents and are executed within its corporate powers. Corporate authorisation documents, including board resolutions and, where applicable, shareholder resolutions and directors’ certificates, are typically required. However, certain transactions may require additional terms depending on market practices. For instance, banks often apply their own standard terms to FX and equity derivatives transactions, which may dictate particular documentary or execution requirements.

Listed entities, on the other hand, may need to comply with their local/applicable listing rules (e.g., the Hong Kong Exchanges and Clearing Limited (“HKEX”) mandates disclosure rules for material derivatives transactions for Hong Kong listed entities). Banks and licensed corporations (“LCs”) or intermediaries may have internal policies, and could be subject to specific disclosure requirements of the Hong Kong Monetary Authority (“HKMA”) or the Securities and Futures Commission (“SFC”); for example, the SFC has fined banks for mis-selling derivatives without proper disclosures.

1.3 Which governing law is most often specified in ISDA documentation in your jurisdiction? Will the courts in your jurisdiction give effect to any choice of foreign law in the parties’ derivatives documentation? If the parties do not specify a choice of law in their derivatives contracts, what are the main principles in your jurisdiction that will determine the governing law of the contract?

In Hong Kong, English law is commonly used as the governing law in cross-border derivatives transactions with counterparties from different jurisdictions, while Hong Kong law is more common for local counterparties (e.g., in private banking sector and retail structured products). New York State law is also sometimes used and preferred by international parties.

Hong Kong courts generally recognise and uphold foreign governing law clauses under the principles of private international law, but may refuse enforcement if such choice of law is contrary to Hong Kong public policy (e.g., breach of sanctions and national security law), has not been made in good faith, or is intended to evade the provisions of another legal system with which the parties have a closer connection.

If the parties do not specify a choice of law in their derivatives contracts, under Hong Kong conflicts of law rules, the governing law would be the law that has the “most real and substantial connection” with the transaction. In making such determination, Hong Kong courts would likely consider various factors including: (a) place of negotiation/execution; (b) location of counterparties; (c) currency/payment jurisdiction; and (d) common market practice. It is, however, very rare to find a properly documented derivatives contract where a choice of law is not specified. For cross-border considerations involving PRC operations or assets, please refer to question 5.1.

Credit Support

2.1 What forms of credit support are typically provided for derivatives transactions in your jurisdiction? How is this typically documented? For example, under an ISDA Credit Support Annex or Credit Support Deed.

There are two main ways in which collateral is taken in Hong Kong: “security interest”; and “title transfer”. The types of credit support provided in each transaction can vary, but may include cash, debt or equity securities, or guarantees or letters of credit from third-party financial institutions. Hong Kong parties often document credit support using either an ISDA Credit Support Annex or Credit Support Deed. For example, in the case of title transfer, the 1995 ISDA Credit Support Annex (Transfer – English law) or the 2016 ISDA Credit Support Annex for Variation Margin (VM) (Transfer – English law) is used, or where a security interest arrangement is contemplated, the ISDA 2018 Credit Support Deed for Initial Margin (IM) (Security Interest – English law) can be used. Other bespoke documentation can also be used.

In December 2023, ISDA published model provisions intended for use by parties transferring tokenised securities (“DLT Securities”) or “stablecoins” (“DLT Cash”, and together with DLT Securities, “Tokenised Collateral”) that utilise distributed ledger technology (“DLT”) as collateral pursuant to a 2016 Credit Support Annex for Variation Margin. However, whether and what Tokenised Collateral types can be used and enforced in Hong Kong is subject to local regulatory restrictions. Where DLT Securities are intended to be used as collateral support, participants should check with the relevant SFC and HKMA guidelines or circulars or consult with local legal professionals.

2.2 Where transactions are collateralised, would this typically be by way of title transfer, by way of security, or a mixture of both methods?

Collateral in derivatives transactions can be taken in various ways depending on the nature of the transactions and the parties’ preferences. For example, hedges for secured debt transactions are usually collateralised through security documents that also secure the principal debt transaction, rather than through a separate Credit Support Annex or Deed. More information on this topic can be found in question 2.1.

2.3 What types of assets are acceptable in your jurisdiction as credit support for obligations under derivatives documentation?

There are two principal classes of collateral assets that are generally acceptable in Hong Kong as credit support for obligations under derivatives documentation: (i) cash and liquid equity; and (ii) fixed-income securities such as listed shares, US treasuries, corporate bonds and other readily marketable debt securities. Marketable debt securities are often issued or fully guaranteed by a sovereign, a relevant international organisation, a multilateral development bank or a public sector entity. The specific types of acceptable assets may depend on the nature of the transaction and the creditworthiness of the parties involved. In Hong Kong, where the counterparty borrower is a sizable PRC corporation and when it enters into hedges in connection with its underlying loan obligations, it is also common to see the use of standby letters of credit issued by a third-party bank as credit support.

Since mid-2024, the HKMA has signalled plans to expand eligible collateral to include e-HKD and licensed stablecoins (e.g., USDC/USDT) for variation margin (“VM”), and green bonds for initial margin (“IM”), but with no formal approval yet. Participants should monitor HKMA circulars for formal adoption timelines.

2.4 Are there specific margining requirements in your jurisdiction to collateralise all or certain classes of derivatives transactions? For example, are there requirements as to the posting of initial margin or variation margin between counterparties?

Yes. In Hong Kong, the HKMA expects authorised institutions (“AIs”) to adopt margins and other risk mitigation standards for non-centrally cleared OTC derivatives transactions. The collateral requirements for non-cleared OTC derivatives are outlined in Module CR-G-14 of the HKMA’s Supervisory Policy Manual (“SPM”), titled “Non-Centrally Cleared OTC Derivative Transactions – Margin and other Risk Mitigation Standards” (“Margin Rules”). The Margin Rules include the requirements of posting IM and VM between counterparties in order to mitigate potential losses in events of default. Starting from 1 September 2022, Hong Kong has implemented the final phase of the IM requirements. The Margin Rules apply when AIs such as banks and approved money brokers, whether or not incorporated in Hong Kong, have entered into derivatives instruments on “covered products” with a “covered entity” (but if the AI is not locally incorporated, only in respect of non-cleared derivatives booked in its Hong Kong branch).

“Covered products” under the Margin Rules include: (i) all non-centrally cleared derivatives transactions, with the exception of repurchase agreements and securities lending transactions, which are not themselves derivatives but share some attributes with derivatives; (ii) indirectly cleared derivatives; (iii) physically settled FX forwards and FX swaps; (iv) the “FX transactions” embedded in cross-currency swaps associated with the exchange of principal; (v) physically settled commodity forwards; and (vi) non-centrally cleared single-stock options, equity basket options and equity index options (note: in light of the different approaches currently adopted by other jurisdictions on these non-centrally cleared equity options, the HKMA has extended the exemptions on these products until further notice).

Currently, physically settled carbon forwards remain exempt from IM under the HKMA’s current rules, though this may be reassessed in 2026 due to international regulatory trends on carbon forwards.

There are also exemptions covering intragroup transactions between entities that are subject to consolidated supervision and meet certain requirements, and for transactions entered into by a securitisation special purpose vehicle (“SPV”) for the sole purpose of hedging.

“Covered entity” is either a “financial counterparty” or a “significant non-financial counterparty”.

A “financial counterparty” includes: (i) an AI, a corporation licensed by the SFC, a Mandatory Provident Fund scheme, an authorised insurer, a licensed money lender, a collective investment scheme (“CIS”), a private equity fund, and an SPV or special purpose entity (but excludes an SPV that enters into uncleared derivatives transactions for the sole purpose of hedging); and (ii) a financial entity that belongs to a consolidated group for which the average aggregate notional amount (“AANA”) of derivatives transactions exceeds HKD 15 billion (note: the HKMA’s 2023 consultation proposed lowering the VM threshold to HKD 10 billion for alignment with the current EU/UK threshold of EUR 8 billion, but no formal amendment has been gazetted).

A “significant non-financial counterparty” is any entity that: (i) is not a financial counterparty; and (ii) belongs to a consolidated group for which the AANA of derivatives transactions exceeds HKD 60 billion.

AANA threshold

AIs must exchange VM for all relevant non-centrally cleared derivatives entered into with a “covered entity” from 1 March 2017 to fully collateralise the current exposures of the derivatives transactions. Furthermore, as of 1 September 2022, AIs must exchange IM in respect of all relevant non-centrally cleared derivatives entered into with a “covered entity”, where both the AI and “covered entity” have an AANA of these derivatives transactions exceeding HKD 60 billion in any one-year period (the “AANA threshold”) (calculated from 1 September to 31 August).

IM threshold

Despite the AANA threshold, an AI may agree with a “covered entity” not to exchange IM if the amount of IM due is equal to or lower than HKD 375 million (the “IM threshold”) shared at the consolidated group level, and is based on all outstanding non-centrally cleared derivatives transactions between the two consolidated groups.

An investment fund managed by an investment advisor will be considered a separate entity for the purpose of applying the IM threshold as long as the fund is a distinct segregated pool of assets (from the assets of its investment advisor) and would be treated as such in insolvency or bankruptcy scenarios of either the fund or the investment advisor, and the fund is not collateralised, guaranteed or otherwise supported by the investment advisor or any other investment fund managed by the investment advisor.

Safeguarding IM

There are also various requirements for safeguarding the IM collected. For example, it is preferable to hold the IM collected under custodian arrangements, ideally managed by third-party custodians; alternatively, sufficient asset segregation measures should be implemented, accompanied by legally valid documentation. Additionally, except limited exceptions, the re-hypothecation, re-pledging, or any form of reuse of the IM collected is prohibited under the terms of the relevant contracts, such as custodian agreements.

SFC regime

In parallel, the SFC had also proposed and consulted upon similar risk mitigation and margining requirements applicable to LCs and their counterparties in non-centrally cleared derivatives transactions. The SFC issued the “Consultation Conclusions on the OTC derivatives regime for Hong Kong – Proposed margin requirements for non-centrally cleared OTC derivative transactions” in December 2019, setting out similar margin requirements, which are applicable to LCs with appropriate modifications and clarifications.

Starting from September 2020, a licensed person who enters into a non-centrally cleared OTC derivatives transaction should implement the risk mitigation and margin requirements set out in Parts I and III of Schedule 10 to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”).

On 15 January 2024, the SFC announced its decision¹ to defer the effective date of its margin requirements for non-centrally cleared OTC single-stock options, equity basket options, and equity index options until 4 January 2026 (extended by two years from the original effective date of 4 January 2024).

The SFC’s decision aligns the effective date of its margin requirements with the UK and EU timelines. The SFC explained that this is to prevent regulatory arbitrage, considering that LCs’ exposures to these non-centrally cleared equity options are currently insignificant (note: the SFC also indicated that Paragraph 7(e) of Part III of Schedule 10 to its Code of Conduct will be amended accordingly and gazetted in due course).

As regulatory requirements may be subject to change from time to time, it is recommended to refer to the latest information on the HKMA and SFC’s websites.

2.5 Does your jurisdiction recognise the role of an agent or trustee to enter into relevant agreements or appropriate collateral/enforce security (as applicable)? Does your jurisdiction recognise trusts?

Yes. In Hong Kong, the role of an agent or trustee to enter into relevant agreements, or appropriate collateral, or to enforce security is recognised. Trusts are also recognised in Hong Kong. It is recommended that a trustee should only enter into agreements or take appropriate collateral/enforcement actions on behalf of a trust if they are duly authorised under a relevant trust deed. A trust deed may be governed by Hong Kong law, English law, New York law or other laws, and would typically follow the governing law of the relevant security documents.

2.6 What are the required formalities to create and/or perfect a valid security over an asset? Are there any regulatory or similar consents required with respect to the enforcement of security?

There are four main types of security interests in Hong Kong: charges; mortgages; pledges; and liens. If the security provider is a Hong Kong incorporated company or a registered non-Hong Kong company under Part 16 of the Companies Ordinance of Hong Kong (Cap. 622 of the Laws of Hong Kong), and the asset falls into a registrable category (covering any floating charge and fixed security over most, but not all, asset types), the security interest must be registered within one month of the relevant security document’s creation against the security provider at the Companies Registry of Hong Kong.

Aside from the above, no other regulatory consents are required for security enforcement in Hong Kong, provided that the collateral provider is not in insolvency proceedings. For example, a secured party can enforce an enforceable and properly perfected, first-ranking, Hong Kong law-governed, fixed security interest over shares located in Hong Kong through its out-of-court power of sale.

On the other hand, enforcing security after the collateral provider’s insolvency may be subject to Hong Kong law restrictions. There are so-called “clawback periods” before a Hong Kong company’s liquidation commencement date, during which transfers or dispositions may be clawed back or set aside upon challenges by a liquidator or other insolvency officials, on grounds such as unfair preference, undervalue transactions, and voidable floating charge.

In August 2021, Hong Kong implemented a statutory automatic stay regime, potentially imposing further restrictions on security enforcement during insolvency situations involving a Hong Kong AI as a counterparty in a derivatives contract. It is crucial to consider the implications of these automatic stay rules when handling security enforcement, particularly when affected entities involve Hong Kong AIs, their holding companies, and their other group companies that are not classified as Hong Kong AIs. For a more detailed discussion on this topic, please refer to question 4.2 below.

For Tokenised Collateral or crypto/digital assets, following a landmark ruling in Hong Kong that recognises cryptocurrencies as property, issues such as ownership, security registration, insolvency and voidable transactions likely follow general company law requirements. The security should be registered with the Companies Registry of Hong Kong within one month of its creation or it can be voided as against other creditors and liquidators.

Regulatory Issues

3.1 Please provide an overview of the key derivatives regulation(s) applicable in your jurisdiction and the regulatory authorities with principal oversight.

Overview

The Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”) is the primary legislation. It provides the legal framework for licensing, market conduct, and compliance requirements, including:

1. Licensing requirements: licensing obligations for dealers, advisers, and intermediaries engaged in derivatives activities in Hong Kong.
2. Mandatory compliance framework: requirements for mandatory clearing, reporting, record-keeping and trading of OTC derivatives.
3. Product authorisation: authorisation requirements for advertisement, invitation, offering documents and related disclosure related to structured or derivatives products offered to the general public in Hong Kong.
4. Market misconduct offences: civil and criminal liabilities for market misconduct offences, such as insider dealing, false trading, price rigging, market manipulation, and dissemination of false or misleading information.

Derivatives transactions referencing shares or listed securities (if listed in Hong Kong) are also subject to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited or (if listed outside Hong Kong) the rules of the relevant stock exchanges in which the securities are listed.

Key derivatives regulations

The derivatives regulatory framework in Hong Kong includes the SFO, its subsidiary legislation, and guidelines issued by the SFC and HKMA. These regulations are designed to enhance market transparency, reduce systemic risk, and ensure a fair and orderly market. Key rules include:

• Reporting and record–keeping rules: The Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules 2016 (Cap. 571AL of the Laws of Hong Kong), setting out a mandatory reporting and record-keeping regime for certain prescribed persons engaging in non-cleared OTC derivatives activities.
• Clearing and designation of central counterparties (“CCPs”): The Securities and Futures (OTC Derivative Transactions – Clearing and Record Keeping Obligations and Designation of Central Counterparties) Rules (Cap. 571AN of the Laws of Hong Kong), outlining a mandatory clearing regime for certain in-scope OTC derivatives transactions, with effect from 1 July 2017, and specifying the applicable clearing threshold for an AI, approved money broker, or LC to follow, and any applicable exemptions.
• Margining requirements: Certain classes of non-cleared derivatives are subject to mandatory margining requirements. These requirements apply to AIs that are either locally incorporated or have non-cleared derivatives booked in its Hong Kong branch. The specific margining requirements depend on the notional amount of the derivatives transaction. For further information in this respect, please refer to question 2.4 above.
• Basel III Final Reform Package: The Banking (Capital) (Amendment) Rules 2023 (L.N. 167 of 2023) address market risk and credit valuation adjustment (“CVA”) risk capital frameworks. These rules took effect on 1 January 2025, with the reporting-only period beginning on 1 July 2024. The HKMA has issued detailed statutory guidance (SPM Modules MR-1: Market Risk Capital Charge and MR-2: CVA Risk Capital Charge) to provide technical details on these requirements.

Regulatory authorities

The SFC and HKMA are the two primary financial services regulators and jointly oversee the OTC derivatives regime in Hong Kong.

The SFC supervises securities and futures markets in Hong Kong, including OTC derivatives, SFC-licensed intermediaries, registered persons, and public offerings of structured and derivatives products. The SFC issues guidelines and codes of conduct for licensed or registered persons, and undertakes enforcement actions.

The HKMA supervises AIs such as banks and approved money brokers in relation to OTC derivatives, issues supervisory manuals and circulars, including guidance on margining (e.g., SPM CR-G-14), market risk, and CVA risk capital charges for in-scope OTC derivatives, and is entitled to exercise disciplinary power to order a pecuniary penalty under the SFO related to OTC derivatives.

3.2 Are there any regulatory changes anticipated, or incoming, in your jurisdiction that are likely to have an impact on entry into derivatives transactions and/or counterparties to derivatives transactions? If so, what are these key changes and their timeline for implementation?

Several regulatory changes are expected to impact derivatives transactions in Hong Kong:

1. Basel III Final Reform Package: Full implementation of revised standards for credit risk, operational risk, market risk, CVA risk, and the output floor took place on 1 January 2025, with the reporting-only period for market risk and CVA risk beginning on 1 July 2024.
2. Amendments to reporting rules: The Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) (Amendment) Rules 2023 (L.N. 61 of 2023) took effect on 2 October 2024. These amendments provide exemptions for RA Type 13 intermediaries that are a counterparty to specified OTC derivatives transactions in its capacity as a trustee of a relevant CIS. The amendments also provide for records that are required to be kept by such persons by virtue of it being a counterparty to a specified OTC derivatives transaction in its capacity as a trustee of a relevant CIS.
3. Virtual asset derivatives: On 28 January 2022, the SFC and HKMA issued guidelines targeting virtual asset products, including derivatives. As a new development for Hong Kong’s derivatives market, on 11 February 2026, the SFC published a high-level framework under the “A-S-P-I-R-e” (acronym for Access, Safeguards, Products, Infrastructure, and Relationships) Roadmap, permitting licensed virtual asset trading platforms (“VATPs”) to offer virtual asset perpetual contracts (“Perps”) to professional investors:²
   1. 1. Perps are leveraged contracts that track the price of an underlying virtual asset or index with no expiry date, and payments are exchanged using periodic funding rates to align the contract price with spot market prices;
      2. eligible reference assets are limited to virtual assets available for retail spot trading on the VATP’s platform, or International Organization of Securities Commissions (“IOSCO”)-compliant indices of such assets;
      3. margin collateral must be in fiat currency, or stablecoins or tokenised deposits regulated by the HKMA; and
      4. Platform Operators must implement robust margining, automated liquidation at pre-defined thresholds, and transparent loss allocation mechanisms (including insurance funds and auto-deleveraging).

   While the framework currently limits access to professional investors, Platform Operators remain subject to the SFC’s complex product regime. This requires them to conduct a robust suitability assessment to ensure that the risk profile of these leveraged Perps is appropriate for the specific counterparty, unless that counterparty qualifies as an institutional professional investor.

4. LIBOR transition (complete): The global transition from LIBOR to alternative reference rates is now complete. LIBOR ceased publication in June 2023 for most settings, with synthetic USD LIBOR (the final remaining setting) ceasing on 30 September 2024. All OTC derivatives in Hong Kong now reference risk-free rates (e.g., SOFR, SONIA) or alternative benchmarks such as the Hong Kong Interbank Offered Rate (“HIBOR”). Market participants who adhered to the ISDA IBOR Fallbacks Protocol have transitioned, while legacy contracts have been amended or matured. The focus has now shifted to monitoring ongoing compliance and addressing any residual legacy exposure.
5. Standardised calculation periods for clearing: Under the mandatory clearing regime, counterparties must determine whether they exceed the prescribed clearing thresholds (based on the AANA of OTC derivatives) that trigger an obligation to centrally clear specified transactions. Currently, calculation periods are entity-specific, which can create complexity and inconsistency. On 29 January 2026, the SFC and HKMA jointly consulted on standardising the calculation periods under the Clearing Rules. The proposal designates 1 March to 31 May and 1 September to 30 November as the fixed annual periods for all in-scope entities to calculate their positions and determine clearing obligations, effective 1 March 2027.³ This standardisation is intended to reduce operational burden and align Hong Kong’s approach with international practices.
6. Crypto–asset exposure and capital requirements: The new HKMA SPM Module CRP-1 “Classification of Cryptoassets” took effect on 1 January 2026. This affects how banks must classify crypto-assets and calculate capital requirements for derivatives with virtual asset underlyings.⁴

3.3 Are there any further practical or regulatory requirements for counterparties wishing to enter into derivatives transactions in your jurisdiction? For example, obtaining and/or maintaining certain licences, consents or authorisations (governmental, regulatory, shareholder or otherwise) or the delegating of certain regulatory responsibilities to an entity with broader regulatory permissions.

The SFO prohibits a person from carrying out a regulated activity unless the person is an LC or an AI that is duly authorised and registered under the SFC regime. Dealing in and/or advising on derivatives is likely to constitute one of the regulated activities of “dealing in securities” (Type 1), “dealing in futures contracts” (Type 2), “advising on securities” (Type 4), “advising on futures contracts” (Type 5), and/or “securities margin financing” (Type 8) as stipulated in the SFO, unless an exemption or exception can be relied upon. An example of a commonly used exemption is where an investment manager who has a Type 9 (asset management) licence advises on a futures contract covered under Type 5, in which case the manager will not be required to apply for a Type 5 licence as long as it is proved to be wholly incidental to the manager’s asset management business.

In June 2020, the SFC submitted proposed amendments to the OTC derivatives licensing regime as part of the Securities and Futures and Companies Legislation (Amendment) Bill 2021 to the Legislative Council, introducing the SFC-regulated activities of “dealing in OTC derivative products or advising on OTC derivative products” (“RA 11”) and “providing client clearing services for OTC derivative transactions” (“RA 12”). The date on which the amended regime will come into effect has not yet been fixed.

For ETDs, the rules and procedures of the Stock Exchange of Hong Kong Limited, Hong Kong Futures Exchange Limited, the SEHK Options Clearing House Limited and HKFE Clearing Corporation Limited impose various requirements and obligations on their respective participants.

Additionally, a new type of SFC regulated activity “providing depositary services for relevant Collective Investment Schemes” (“RA 13”) took effect on 2 October 2024. The RA 13 regime regulates trustees and custodians providing depositary services for CISs. Under RA 13, trustees and custodians must now be licensed or registered with the SFC unless exempt. Banks/AIs are exempt from RA 13 licensing only when acting as custodians for their own managed funds. The regime focuses on two key functions: (1) custody and safekeeping: ensuring the proper custody, safekeeping, and segregation of scheme property; and (2) oversight: monitoring the operations of the CIS to ensure compliance with its constitutive documents and applicable laws. This regulatory framework enhances investor protection and aligns Hong Kong’s regime with international standards. AIs that also act as trustees and custodians for CISs and intend to enter into derivatives on behalf of these CISs and also provide depository and/or custodial services to CISs should check whether applicable exemptions apply and if not, apply for an RA 13 licence.

3.4 Does your jurisdiction provide any exemptions from regulatory requirements and/or for special treatment for certain types of counterparties (such as pension funds or public bodies)?

Hong Kong provides special treatment or exemptions for certain counterparties under derivatives regulations if certain conditions are met:

1. Pension funds: Pension funds in Hong Kong are schemes that are registered under either the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the Laws of Hong Kong) or the Occupational Retirement Schemes Ordinance (Cap. 426 of the Laws of Hong Kong). There are certain requirements to be met by such schemes before they can enter into derivatives transactions.
2. Retail unit trust funds: According to the Code on Unit Trusts and Mutual Funds issued by the SFC, retail unit trust funds may only use derivatives for the purposes of and to such extent prescribed in its investment objectives, policies and restrictions. Generally speaking, derivatives that are used for hedging purposes are subject to less restrictions than those for speculative purposes.
3. Securitisation SPVs: Securitisation SPVs entering into uncleared OTC derivatives transactions with a financial institution is exempt from the margining requirements as discussed in question 2.4, if and to the extent that the SPV entered into such OTC derivatives transactions for the sole purpose of hedging.

Insolvency / Bankruptcy

4.1 In what circumstances of distress would a default and/or termination right (each as applicable) arise in your jurisdiction?

In Hong Kong, a “bankruptcy” event of default as referred to in the ISDA Master Agreement would give rise to a default and/or termination right. The grounds on which a company may be wound up are contained in section 177 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (“CWUMPO”). One of the grounds is that the company is “unable to pay its debts”.

A company is unable to pay its debts if:

1. a creditor who is owed HKD 10,000 or more (then due) has served a statutory demand on the company at its registered office and the company neglects to pay the sum due or to secure or compound for it to the satisfaction of the creditor within three weeks of service;
2. execution or other process issued on a judgment or court order in favour of the creditor is returned unsatisfied; or
3. after considering the contingent and prospective liabilities of the company, it is proved to the court that the company cannot pay its debts. The usual test relied upon is the cash flow test, but the balance sheet test is also applicable.

Other events of default and termination events (for example, failure to pay, misrepresentation and cross-default) may also be triggered if a party to a derivatives transaction is in a distressed scenario.

While certain of ISDA’s standard termination provisions might arguably be activated (in part or indirectly) by sanctions, these provisions were not designed to deal with the potential consequences to derivatives counterparties and transactions or the mechanics for termination and determination of the close-out amount in a sanctions scenario. ISDA has published a guidance note on sanctions and derivatives that addresses this problem by proposing an additional termination event specifically tailored to such a scenario. Despite this, it is still unclear whether parties would accept to have these sanctions-related terms incorporated into their agreements, due to the difficulties of agreeing on such terms.

4.2 Are there any automatic stay of creditor action or regulatory intervention regimes in your jurisdiction that may protect the insolvent/bankrupt counterparty or impact the recovery of the close-out amount from an insolvent/bankrupt counterparty? If so, what is the length of such stay of action?

Under section 186 of the CWUMPO, when a winding-up order has been made, or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except by leave of the court, and subject to such terms as the court may impose. However, this generally will not prevent a termination right against the counterparty being exercised, or an out-of-court enforcement of security over the counterparty’s assets by a receiver.

If the counterparty is a “within scope financial institution” for the purpose of the Financial Institutions (Resolution) Ordinance (Cap. 628 of the Laws of Hong Kong), certain obligations of the counterparty may be temporarily stayed, but set-off, netting, title transfer and security arrangements are generally protected in relation to partial property transfers and bail-in.

4.3 In what circumstances (if any) could an insolvency/bankruptcy official render derivatives transactions void or voidable in your jurisdiction?

Derivatives transactions may be rendered void or voidable in the circumstances as set out in question 4.4 below.

4.4 Are there clawback provisions specified in the legislation of your jurisdiction that could apply to derivatives transactions? If so, in what circumstances could such clawback provisions apply?

Yes. The insolvency clawback provisions in Hong Kong include:

• Transactions at undervalue – the company enters into a transaction at undervalue with a person if the company receives no consideration, or consideration that is significantly less than the consideration provided by the company. The transaction has been entered into in the five-year period before the company’s winding up is commenced at a time when the company was unable to pay its debts, or the company became unable to pay its debts as a result of entering into the transaction. However, the transaction will not be set aside if the court is satisfied that the company entered into the transaction in good faith and for the purpose of carrying on its business, and there were reasonable grounds for believing that the transaction would benefit the company. Therefore, this would not apply to derivatives transactions entered into on arm’s length terms.
• Unfair preferences – an unfair preference is an action taken by the company, influenced by a desire to prefer, that puts one creditor in a better position in the event of insolvency than it would otherwise have been. The transactions caught are those that take place during the six-month period before the company winding up is commenced, but this can be extended to a two-year period if the recipient is a person connected with the company. Transactions involving persons connected with the company are presumed to be an unfair preference unless proven otherwise.
• Extortionate extensions of credit to the company – an extension of credit to the company within the three-year period before the commencement of the winding up may be set aside upon the application of a liquidator if, having regard to the risk accepted by the person providing the credit, the terms of it are such as to require grossly exorbitant payments to be made (whether unconditionally or in certain contingencies) in respect of the provision of credit, or if it otherwise grossly contravenes ordinary principles of fair dealing. Provided that the derivatives transaction documentations and transactions thereunder are bona fide, these provisions are unlikely to apply.
• Floating charges – if it is created by the company within the two-year period before the company’s winding up commenced (if granted in favour of a connected person), or 12 months before the company’s winding up commenced (if granted in favour of a non-connected person), and the company was unable to pay its debts at the time it was granted or became unable to pay its debts as a result, save to the extent of any new money provided to the company in return for the charge.
• Transactions made with the intention to defraud creditors or for a fraudulent purpose – a transaction can be set aside if it took place with the aim of placing assets beyond the reach of creditors. However, if the property disposed of is held by a bona fide third-party purchaser for value and without notice of the fraud, then the transaction will not be set aside.
• With the approval of the court and within the 12-month period of the commencement of the liquidation, the liquidator can also disclaim onerous property of the company, including unprofitable contracts. However, the single agreement and flawed asset provisions in an ISDA Master Agreement could defeat the liquidator’s right to cherry-pick individual transactions because all transactions form part of a single agreement and the obligations of the non-defaulting party cease to be due post-insolvency.

4.5 In your jurisdiction, could an insolvency/bankruptcy-related close-out of derivatives transactions be deemed to take effect prior to an insolvency/bankruptcy taking effect?

Unless Automatic Early Termination (“AET”) is elected under an ISDA Master Agreement and specified to apply, insolvency/bankruptcy close-out will not be deemed to take effect prior to any insolvency/bankruptcy taking effect. If parties elect AET, insolvency/bankruptcy close-out would be deemed to take effect immediately preceding any insolvency/bankruptcy event, without requiring the further step of serving a termination notice. It is not essential to make such election for close-out netting to be valid under Hong Kong law. In fact, it is uncommon for parties in Hong Kong to elect for AET to apply as far as Hong Kong insolvency law is concerned.

4.6 Would a court in your jurisdiction give effect to contractual provisions in a contract (even if such contract is governed by the laws of another country) that have the effect of distributing payments to parties in the order specified in the contract?

As long as the contract demonstrates a clear intention of the parties, Hong Kong courts would generally give effect to the contractual provisions in the contract (even if such contract is governed by the laws of another country (see question 1.3 above)) that have the effect of distributing payments to parties in the order specified in the contract.

Close-out Netting

5.1 Has an industry-standard legal opinion been produced in your jurisdiction in respect of the enforceability of close-out netting and/or set-off provisions in derivatives documentation? What are the key legal considerations for parties wishing to net their exposures when closing out derivatives transactions in your jurisdiction?

For derivatives transactions documented using an ISDA Master Agreement, ISDA has commissioned Hong Kong legal opinions in respect of the enforceability of close-out netting and/or set-off provisions in derivatives documentation.

Generally speaking, the contractual netting and set-off provisions in the ISDA Master Agreement are enforceable in Hong Kong where the parties are solvent. There are several forms of set-off in Hong Kong, and contractual set-off pursuant to an agreement is generally enforceable.

If a counterparty is insolvent, then statutory/insolvency set-off would apply to mutual credits, mutual debts and other liabilities arising out of mutual dealings between the counterparties. The application of statutory/insolvency set-off is mandatory and cannot be contracted out of by the counterparties. Netting and set-off provisions under an ISDA Master Agreement are likely to comply with statutory/insolvency set-off requirements.

Recognition of foreign restructuring

In Re China Huiyuan Juice Group Limited [2026] HKCFI 188, a landmark ruling on 20 January 2026, the Hong Kong court affirmed that common law recognition and assistance extend beyond liquidation to foreign insolvency restructuring office holders.⁵ Previously, there was uncertainty as to whether Hong Kong courts would recognise and assist foreign office holders appointed in restructuring proceedings (as opposed to formal liquidation). This decision clarifies that Hong Kong courts may grant recognition to administrators or restructuring professionals appointed in foreign jurisdictions, enabling them to take action in Hong Kong (e.g., to recover assets or enforce stays). For derivatives counterparties, this is a positive development because it provides greater legal certainty that close-out netting provisions under an ISDA Master Agreement will be respected and enforceable even where a Hong Kong counterparty is subject to a cross-border restructuring rather than a formal winding-up – reducing the risk that netting rights could be challenged or disrupted during the restructuring process.

By affirming that Hong Kong courts can recognise and assist foreign office holders during the restructuring phase (rather than just formal liquidation), this decision further reinforces the “single agreement” concept. It effectively mitigates the risk of a foreign administrator attempting to “cherry-pick” or disclaim individual unprofitable transactions, thereby protecting the integrity of the close-out netting process under the ISDA Master Agreement.

Cross–border considerations

While close-out netting is enforceable under Hong Kong law, its enforceability in cross-border insolvencies involving entities with operations or assets in the PRC presents complexity:

• Enforceability under PRC law: The PRC’s Futures and Derivatives Law (“FDL”), effective from 1 August 2022, explicitly recognises the enforceability of close-out netting. This marks a significant development in China’s derivatives market, providing legal certainty for market participants.
• Cross–border insolvencies: Despite the FDL’s provisions, challenges remain in cross-border insolvencies. The PRC’s legal framework does not uniformly recognise netting rights, especially concerning foreign entities. This lack of explicit recognition can lead to uncertainties when enforcing close-out netting in cross-border insolvencies involving PRC operations or assets.
• Practical implications: Given these uncertainties, parties engaged in derivatives transactions with a PRC nexus may consider structuring agreements under PRC law. This approach aligns with the 2024 Greater Bay Area Financial Integration Framework, which aims to harmonise financial regulations and practices within the Greater Bay Area, potentially offering a more predictable legal environment for such transactions.

5.2 Are there any restrictions in your jurisdiction on close-out netting in respect of all derivatives transactions under a single master agreement, including in the event of an early termination of transactions?

Close-out netting is generally effective and enforceable in Hong Kong, as Hong Kong contract law typically respects parties’ freedom of contract. This includes close-out netting in respect of all derivatives transactions under a single master agreement, even in case of early termination. Where the parties have elected “Multiple Transaction Payment Netting” under the ISDA Master Agreement, such arrangement is also expected to be enforceable.

5.3 Is Automatic Early Termination (“AET”) typically applied/disapplied in your jurisdiction and/or in respect of entities established in your jurisdiction?

AET is usually disapplied in Hong Kong and/or in respect of entities established in Hong Kong. See question 4.5 above for further details. This is consistent with market practice, as counterparties often prefer to maintain control over the timing and execution of early termination events.

5.4 Is it possible for the termination currency to be denominated in a currency other than your domestic currency? Can judgment debts be applied in a currency other than your domestic currency?

Yes. It is possible for the termination currency to be denominated in a currency other than Hong Kong dollars, and judgment debts can be applied in a currency other than Hong Kong dollars. However, in the event of an insolvency of a counterparty, for procedural reasons, the amount must be converted into Hong Kong dollars if the insolvent judgment debtor refuses to make payment voluntarily, and execution must be levied in Hong Kong dollars to recover the funds.

Taxation

6.1 Are derivatives transactions taxed as income or capital in your jurisdiction? Does your answer depend on the asset class?

Hong Kong does not have a capital gains tax regime. Treatment for gains derived from derivatives transactions will follow tax treatment for accounting purposes. Gains derived from derivatives transactions may be subject to profits tax if the transactions are considered revenue-generating activities carried out in Hong Kong. The Inland Revenue Department (“IRD”) of Hong Kong issued a revised departmental interpretation and practice note (DIPN No. 42) in June 2020 providing guidance on the tax treatment of financial instruments, including derivatives. The tax treatment may vary based on factors such as the classification of the instrument (whether the instrument is a capital or revenue asset), and whether it is held for trading, investment, or solely for hedging purposes.

On the other hand, posting or exchange of margins/collaterals between derivatives counterparties are not generally subject to stamp duty but, if such transaction constitutes a transfer of “Hong Kong stocks” within the meaning of the Stamp Duty Ordinance (Cap. 117 of the Laws of Hong Kong), stamp duty may be applicable for such transfer or exchange.

Tax advice in Hong Kong is typically provided by professional accountants. Transaction parties would normally seek tax advice when structuring their transactions.

6.2 Would part of any payment in respect of derivatives transactions be subject to withholding taxes in your jurisdiction? Does your answer depend on the asset class? If so, what are the typical methods for reducing or limiting exposure to withholding taxes?

Hong Kong does not have a withholding tax regime. Therefore, in cross-border transactions where there is a counterparty in a jurisdiction with a withholding tax regime, parties to the derivatives documentation would typically build in appropriate tax gross-up provisions based on the relevant tax laws and regulations (e.g., FATCA withholding provisions) to offset or minimise the effect of any withholding tax in the relevant jurisdiction.

6.3 Are there any relevant taxation exclusions or exceptions for certain classes of derivatives?

As discussed in question 6.1, gains from derivatives transactions may be subject to profits tax depending on the purpose and classification of the instrument. For derivatives used in hedging transactions, hedge accounting treatment may apply, which can affect the calculation of profits tax. Transactions that involve capital assets and are not revenue-generating may be excluded from profits tax. However, the determination of whether a transaction is revenue or capital in nature depends on the facts and circumstances of each case, as well as the accounting treatment adopted. Professional advice from tax advisors or accountants is recommended to ensure proper classification and compliance with Hong Kong’s tax laws.

Bespoke Jurisdictional Matters

7.1 Are there any material considerations that should be considered by market participants wishing to enter into derivatives transactions in your jurisdiction? Please include any cross-border issues that apply when posting or receiving collateral with foreign counterparties (e.g. restrictions on foreign currencies) or restrictions on transferability (e.g. assignment and novation, including notice mechanics, timings, etc.).

There are generally no cross-border restrictions in Hong Kong when posting or receiving collateral with foreign counterparties, except that participants should consider any applicable licensing, disclosure and margining requirements, and the implications of other relevant regulations such as anti-money laundering and international sanctions regulations before entering into a transaction. There is also no currency or FX control regime in Hong Kong.

However, it should be noted that the PRC has a currency control regime with respect to the PRC onshore RMB, and the pledging of certain types of RMB denominated assets may be subject to PRC regulatory restrictions. The PRC also imposes FX controls that may restrict the transfer of funds and foreign currency between a PRC counterparty and an offshore counterparty, in terms of both timing and amount, and such PRC restrictions may affect the transfer of collaterals between a PRC counterparty and an offshore counterparty. Therefore, transaction parties should be aware of the implications of any applicable PRC legal requirements when posting or receiving collateral with PRC counterparties.

Additionally, parties entering into derivatives trades with a PRC counterparty should be aware that the new FDL (中华人民共和国期货和衍生品法) in the PRC came into effect on 1 August 2022. The new law introduces a framework for regulating OTC derivatives transactions in the PRC; therefore, parties trading derivatives with PRC counterparties should be aware of any new requirements under the new FDL, which may include, for example, registration, filing, reporting, disclosure and/or margining requirements.

Similarly, the place where a foreign counterparty resides or is incorporated, as applicable, may impose restrictions on the pledging and transfer of collateral. Parties should therefore consider all relevant legal implications.

Restrictions on transferability

Restrictions on transferability, such as assignment and novation of derivatives transactions or their collaterals, are generally minimal in Hong Kong, but parties must comply with notice requirements under both Hong Kong law (if the assignment or transfer is governed by Hong Kong law) and procedural requirements outlined in their agreements. These typically include providing prior written notice to the counterparty, obtaining consent if required, and ensuring that all conditions for the transfer are met. Timing and effectiveness may also be affected by the laws of a foreign counterparty’s jurisdiction, which could impose additional requirements on notices, timing or restrictions.

Market Trends

8.1 What has been the most significant change(s), if any, to the way in which derivatives are transacted and/or documented in recent years?

Regulatory reforms

As a response to the 2007 global financial crisis, comprehensive regulatory reforms were enacted to mitigate systemic risks in financial markets, including derivatives regulations. These reforms cover various aspects such as IM and VM requirements, derivatives clearing, reporting, and record-keeping standards.

In May 2015, the SFC implemented reporting and record-keeping protocols for OTC derivatives transactions and established a trade repository in Hong Kong to enhance transparency and risk monitoring for OTC derivatives.⁶

Additionally, since March 2017, the HKMA has implemented margin requirements and risk mitigation standards for non-centrally cleared OTC derivatives transactions, aligning with the global standards set by entities like the Basel Committee on Banking Supervision and IOSCO.

In recent years, the HKMA has actively implemented the phase-in of the Basel framework, aligning with the evolving international standards on regulatory capital treatment for cleared derivatives.

Under the Basel framework, cleared derivatives trades, which potentially help eliminate or minimise systemic risks, would receive preferential capital relief treatment compared to uncleared trades.

Bespoke ISDA amendments

Over the years, ISDA has issued various bespoke ISDA amendments, protocols or modules specifically for Hong Kong counterparties to incorporate into their ISDA agreements.

Most notably, in all new ISDA agreements entered with a local bank, it has become common practice for local banks to require counterparties to agree to incorporate the following:

• the ISDA Amendment Agreement Relating to the HKMA Risk Mitigation Standards, which allows parties to amend the terms of their covered master agreements to reflect certain portfolio reconciliation, dispute resolution, and other risk mitigation requirements imposed by the HKMA for non-centrally cleared OTC derivatives; and
• the ISDA Hong Kong Jurisdictional Module, which allows market participants to comply with the Financial Institutions (Resolution) Ordinance (Cap. 628 of the Laws of Hong Kong) and other relevant regulations in Hong Kong.

8.2 What, if any, ongoing or upcoming legal, commercial or technological developments do you see as having the greatest impact on the market for derivatives transactions in your jurisdiction? For example, developments that might have an impact on commercial terms, the volume of trades and/or the main types of products traded, smart contracts or other technological solutions.

Virtual asset derivatives: market outlook

As discussed in question 3.2, the SFC’s February 2026 framework for virtual asset Perps and the HKMA’s April 2026 stablecoin issuer licences⁷ are a significant development for Hong Kong’s derivatives market. From a market perspective, these regulatory developments are expected to drive growth in virtual asset derivatives trading volumes, as institutional participants can now access leveraged virtual asset exposure through a regulated, transparent framework with robust margining and risk controls.

Looking ahead, market participants should monitor: (a) further SFC guidance as Platform Operators submit proposed Perp structures for approval; (b) expansion of eligible reference assets beyond initial offerings; and (c) potential development of Southbound channels for Mainland investors to access Hong Kong-listed virtual asset derivatives. Combined with Hong Kong’s established strengths in OTC derivatives documentation, clearing infrastructure, and enforceable close-out netting, these virtual asset developments aim at positioning Hong Kong as a leading jurisdiction for sophisticated digital asset derivatives in the Asia-Pacific region.

Notwithstanding these developments, certain virtual asset-related products continue to be considered complex products and remain limited to professional investors.⁸ The professional investor restriction does not apply to a limited suite of virtual asset-related derivatives products that are traded on regulated exchanges specified by the SFC,⁹ nor to exchange-traded virtual asset derivatives funds authorised or approved for offering to retail investors by respective regulators in designated jurisdictions.¹⁰ Nonetheless, if these products are classified as complex exchange-traded derivatives, they may still be caught by the SFC’s complex product regime; in connection with this, the SFC has issued a non-exhaustive list of examples of non-complex and complex products to help the public decide whether a product in question is a complex or a non-complex product. If it is a complex product, intermediaries are subject to the relevant requirements under the complex product regime, including various selling restrictions and the application of suitability requirements when clients purchase complex products on an unsolicited basis.

Tokenised Collateral

“Tokenised Collateral” refers to traditional financial assets – such as government bonds, money market fund units, or cash deposits – that have been converted into digital tokens on a distributed ledger (blockchain), enabling faster settlement, greater transparency, and potential 24/7 transferability. Building on the ISDA model provisions published in December 2023 for transferring Tokenised Collateral under Credit Support Annexes (see question 2.1),¹¹ market participants are increasingly using tokenised assets for VM. For example, a derivatives counterparty could post tokenised US Treasury bonds as VM, with ownership transfers settled near-instantaneously on-chain rather than through traditional T+1 or T+2 securities settlement. The SFC’s virtual asset Perps framework, which permits HKMA-regulated stablecoins and tokenised deposits as eligible margin collateral (see question 3.2), complements this trend and signals broader regulatory acceptance of DLT-based collateral in Hong Kong’s derivatives market.

Interest rate derivatives post–LIBOR

With the LIBOR transition now complete (see question 3.2), HIBOR remains the primary benchmark for HKD interest rate derivatives, with no plan to transition to the Hong Kong Dollar Overnight Index Average (“HONIA”).¹² Market focus has shifted to managing volatility in cross-currency basis spreads, particularly for multinational corporates hedging cross-currency exposures (including interest rates). Participants should still ensure bilateral fallback provisions remain in place for HKD derivatives referencing HIBOR. The Swap Connect scheme (discussed below) has further expanded opportunities for RMB interest rate derivatives, enabling hedging strategies that span Hong Kong and Mainland China markets.

Swap Connect¹³

Lastly, following a recent joint announcement by the People’s Bank of China (“PBOC”), the SFC, and the HKMA, the Swap Connect scheme commenced operation on 15 May 2023. Initially, it provides a Northbound trading channel, offering Hong Kong and global institutional investors an entry point into China’s interbank financial derivatives market.

The Swap Connect scheme will be facilitated through a connection between the financial infrastructure institutions of both Hong Kong and Mainland China, involving the collaboration between OTC Clear (the clearing subsidiary of HKEX), the China Foreign Exchange Trade System (“CFETS”), and the Shanghai Clearing House (“SHCH”), which will work together to launch and manage the scheme.

In its initial stages, Swap Connect will allow CFETS and overseas electronic trading platforms approved by the PBOC to offer trading services to Hong Kong and international investors. Initially, it provides access to interest rate swaps, which will be priced, settled, and cleared in RMB.

According to the HKEX, OTC Clear and SHCH collaborate to provide clearing and settlement services through a CCP link. OTC Clear, an SFC-recognised clearing house and an internationally recognised qualifying CCP, will offer central clearing services for Hong Kong and international investors. In contrast, SHCH will cater to investors in Mainland China with similar services. OTC Clear’s role includes the provision of clearing and settlement services for OTC derivatives transactions.

In future, the Swap Connect programme could pave way to the addition of other RMB OTC derivatives, such as forwards and credit default swaps, depending on market demands and conditions. This expansion of tradable products could further diversify and open up the derivatives market in both Hong Kong and China, enhancing its appeal to global investors.