The amendable agreement contains provisions for portfolio voting, dispute resolution and (unilateral) commercial confirmation. These provisions largely follow the provisions of the bilateral amendment agreement issued by ISDA in April 2017 for HKMA risk mitigation requirements, in order to achieve operational coherence for participants (or groups) who may be subject to HKMA and SFC risk mitigation requirements. The SFC evaluation requirements are stricter than those imposed by HKMA and require that an LC have evaluation processes in general and not just for margin exchange purposes. The amendment agreement therefore contains additional provisions for evaluation. The amending agreement addresses the documentary aspect of certain risk mitigation requirements; It is likely that compliance with the new requirements will require further operational and compliance changes within the LC. The amendment agreement is not the only way for PCs to implement changes to the new requirements in the documentation; LCs may adopt alternative documentation solutions to meet the new requirements. The risk mitigation requirements apply to (i) any LC (regardless of the regulated activity for which it is permitted) that is a party to non-centralized OVER-the-counter derivatives and (ii) to a Type 9 portfolio manager (i.e. an asset manager) who provides an over-the-counter derivatives portfolio management service for a collective investment system (CIS) he manages. , with respect to OTC derivatives transactions that are not centrally regulated and executed by the IEC, with the exception of any risk mitigation requirements regulated by the CIS`s governing body or its delegate. The CFS requirements apply to all LCs, regardless of the size of their portfolio of non-centralized OTC derivatives and the purpose for which the derivative was used (i.e., whether it is secure or not).
CfS risk mitigation requirements do not apply to registered individuals. Risk reduction requirements are imposed as behavioural criteria in the SFC Code of Conduct (in a new schedule 10). These requirements are as follows: On September 1, 2019, the risk mitigation requirements for centrally unre-converted OTC derivatives, imposed by the Securities and Futures Commission (SFC) for licensed companies (LC), became effective. Risk mitigation requirements are operational and documentation requirements designed to reduce counterparty credit risk and operational risk that mcs face when trading countervailing otC derivatives centrally. Evaluation – LCs are required to agree in writing with their counterparties on the process by which the value of an uncompensated otC derivative is determined over the life of the transaction, from execution to termination, maturity or expiry. The agreement on the evaluation process should be recorded in the trade documentation or commercial confirmation. Ratings should be based on mark-to-market or a mark-to-model basis. CNs are required to define and implement policies and procedures to ensure that essential conditions are exchanged and that valuations for all portfolios of uncoordinated otC derivatives are periodically coordinated with counterparties.