Oversight: SFC Consultation on the Position Limit Regime

On 26 April 2022, the Securities and Futures Commission of Hong Kong (SFC) published a Consultation Paper on the proposed changes to the Securities and Futures (Contracts Limits and Reportable Positions) Rules and the Guidance Note on Position Limits and Large Open Position Reporting Requirements (Consultation Paper). In the Consultation Paper, the SFC proposes to amend the Securities and Futures (Contracts Limits and Reportable Positions) Rules (Rules) and the SFC’s Guidance Note on Position Limits and Large Open Position Reporting Requirements (Guidance Note). These revisions are intended to help reduce systemic risks in the securities and futures industry and safeguard market stability.

Under section 35(1) of the Securities and Futures Ordinance (SFO), the SFC may prescribe limits on the number of futures and options contracts a person may, directly or indirectly, hold or control and require a person holding or controlling a reportable position to lodge a notice of that reportable position with a recognised exchange company or the SFC. The statutory prescribed limits and reportable positions of futures and options contracts are set out in the Rules. The position limit regime in Hong Kong was last updated in 2017 where both the cap on the excess position limit which may be authorised by the SFC and the prescribed limit for stock options contracts were increased, and new excess position limits regimes for index arbitrage activities, asset managers and market makers of exchange-traded funds were introduced. Regarding the currently proposed changes, a draft of the SFC’s intended revised Rules and Guidance Note are appended to the Consultation Paper.

This Oversight provides an overview of the amendments proposed to be introduced by the SFC in regards to the position limit regime. It first discusses the proposed amendments and compares them against the relevant current requirements. It then looks at the practical implications of the proposed changes.