Equity derivatives players in Hong Kong are up in arms about upcoming financial regulatory changes because they could hinder liquidity in the over-the-counter market and be expensive to implement. "[The Securities and Futures Commission is] really trying to clamp down on market manipulation, but this could drive away liquidity," said Ali Ahmed, head of equity derivatives trading at ABN AMRO in Hong Kong.
The legislation, which will come into effect early next year, has angered market professionals on two fronts, the first is the requirement to disclose firm wide holdings of over 5% in any Hong Kong company and the second is to make supervisors, rather than the institution, personally liable for legal mishaps.
International houses will have to calculate their holdings in Hong Kong stocks, between divisions, products and offices. "It will be expensive for big groups to look at their positions worldwide," said Jeremy Walter, a partner at Clifford Chance in Hong Kong.
The extensive disclosures could hurt liquidity if investors or banks steer away from amassing positions in order to avoid reporting their holdings, said traders. They added, "As long as our books are hedged there's no reason we need to know what other divisions are doing." There will also be logistical difficulties, noted the traders. "When we're trading positions all the time how will we know if we've hit the threshold level unless someone's monitoring it all day?"
However, the regulator argues, "It's necessary for the market to know [this information]," said C.K. Chan, spokesman at the SFC in Hong Kong. Chan did not return calls about whether these measures were going to damage liquidity and harm the OTC market.
