To me, the market’s opinion is clear: derivative markets in Asia need to be further developed. Let me share some recent experiences in Hong Kong in this regard. By daily average trading volume, our interest rate and FX derivative markets have almost doubled since 2013, and are now first and second, respectively, in terms of regional market share. Notwithstanding this growth, Hong Kong still only accounts for a small global market share, and the products we cover – both in terms of contract type and underlying currency – has a lot of room to expand. We have therefore taken a proactive approach by encouraging international banks to establish derivative hubs serving Asian risks in Hong Kong as long as they meet capital adequacy requirements and our risk management standards. Establishment of these hubs can help banks take advantage of Hong Kong’s double tax agreements with all key economies in the region; more importantly, our city’s growing status as a nexus between Mainland China and the rest of the world means that Hong Kong will play an increasing role in providing risk management solutions for international investors going into China and, increasingly, Chinese investors going global, just like how we successfully facilitate those investments through our Connect schemes. Our commitment to further developing the derivatives market is strong and we stand ready to work with various partners on this. One key current issue is benchmark reform.
But I do want to remind ourselves to stay vigilant and ensure that implementation is seen through, as this work has not yet been completed. For example, initial margin requirements on non-cleared derivatives, which guard against the overuse of embedded leverage in derivatives, are still being phased-in in a number of jurisdictions including Hong Kong. At the same time, while derivative transactions that are intended to be cleared has increased five-fold in the past four years in Hong Kong, according to data from our Trade Repository, there is more room for further standardisation. Finally, solutions such as deference mechanisms, which helps eliminate cross-jurisdictional regulatory arbitrage, are still works-in-progress between the HKMA and our overseas counterparts. As we embark on further deepening of the derivatives markets in the Asian region, the high standards set up by regulators and by the industry over the past ten years should be well respected, and strengthened regulations on margins, clearing, and transparency should be taken seriously as safeguards against potential risks. Let me close by saying a few words about our host today. ISDA has been instrumental in promoting standardisation of documentation and practices in derivatives markets. In the process, it has played a key role in navigating the industry through post-crisis reforms. ISDA is and will continue to be an important platform for consensus building and knowledge sharing. I’m certain that ISDA will remain a valuable partner for everyone in Asia as we continue to overcome the challenges I discussed today. I look forward to more fruitful collaboration going forward.