LCQ10: Promoting development of futures and derivatives markets
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Question:
There are views pointing out that in order to strengthen Hong Kong's role as an international risk management centre and enhance its global competitiveness, Hong Kong needs to elevate the status of its futures and derivatives, thereby enabling the market to better hedge risks across different asset types within investment portfolios, as well as to strengthen the existing financial infrastructure and enhance the efficiency of market capital utilisation. In this connection, will the Government inform this Council:
(1) how the Government and relevant regulatory bodies will further promote and deepen the development of the futures and derivatives markets to achieve world-leading standards; whether specific measures will include: exploring the introduction of relevant incentive schemes; enriching products and services to better manage risks associated with futures, such as exchange rates, currencies, agriculture, energy and precious metals, in the real economy; and attracting and nurturing relevant talents;
(2) of the progress of the Government's current discussions with the Mainland on the establishment of a mutual access mechanism for futures and derivatives;
(3) whether the Government will encourage the Hong Kong Exchanges and Clearing Limited (HKEX) to establish a legal and operational framework for "cross-product and cross-clearing house" among its clearing houses, enabling market participants to hedge risks across positions in different products, thereby reducing the duplication of margin payments and enhancing the overall efficiency of capital utilisation and liquidity of the market; if not, of the Government's alternative proposals; and
(4) whether the Government will consider the International Monetary Fund's recommendation in 2021 to enhance the efficiency of market capital utilisation by merging the three clearing houses currently under the HKEX, namely Hong Kong Securities Clearing Company Limited, HKFE Clearing Corporation Limited and The SEHK Options Clearing House Limited; if not, of the reasons for that?
Reply:
President,
The National 15th Five-Year Plan outline supports Hong Kong in consolidating and enhancing its status as an international financial centre, strengthening its role as a global offshore Renminbi business hub, an international asset management centre and a risk management centre as well as calling for the orderly advancement of mutual access between the Mainland and Hong Kong financial markets. The Government, together with the regulators and the Hong Kong Exchanges and Clearing Limited (HKEX), have been proactively taking forward measures in these areas, including deepening the development of the derivatives market continuously, strengthening market infrastructure and enriching investment choices, so as to meet the diverse asset allocation and risk management needs of both Mainland and international investors.
In consultation with the Securities and Futures Commission (SFC) and the HKEX, the reply to the four parts of the question is as follows:
(1) The Government, the SFC and the HKEX have been working closely to promote the development of the derivatives market through introducing a wide range of products and enhancing trading services. At present, the Hong Kong market offers a diversified suite of derivatives instruments, including futures, options and other structured products, covering equity indices, single stocks, foreign exchange, interest rates and commodities-related assets, catering to the needs of different investors. The rapid growth of innovative technology enterprises in recent years has also led to the launch of various new products successively, including the Hang Seng TECH Index futures and options, Hang Seng Biotech Index futures, Asia's first batch of leveraged and inverse products on single stocks, and the first batch of US Dollar denominated derivative warrants on US equities, providing investors with more diversified choices. In addition, the HKEX issued a circular in May this year announcing trading fee waivers and incentive programmes for liquidity providers and active traders of US Dollar gold futures contract, with a view to stimulating its trading volume in line with the development of Hong Kong's gold trading market. The arrangements will take effect from July this year.
On trading services, building on the introduction of after-hours trading in the derivatives market in 2013, the HKEX has progressively extended the trading hours to 3am on the following day in phases. The HKEX has also implemented holiday trading for derivatives, and has included all currency futures and options to facilitate investors to conduct risk management during overseas trading hours and Hong Kong public holidays. In addition, the Government and the SFC have enhanced the position limit regime for derivatives, raising the position limits for futures and options and removing the limits for international asset-related derivatives. To further promote market development, the Government has amended legislation to exempt option market makers from fixed-rate stamp duty on jobbing business, thereby reducing transaction costs and enhancing market liquidity and risk management efficiency for investors.
Driven by various measures implemented, trading in Hong Kong's derivatives market has continued to grow. In 2025, the average daily turnover of futures and options reached 1.66 million contracts, up 7 per cent from 2024 and marking a record high. As of end-May this year, the average daily turnover of futures and options further increased to over 1.78 million contracts.
Looking ahead, the Government will continue to support the SFC and the HKEX in enhancing the development of the derivatives market. The HKEX is developing a next-generation derivatives trading platform to facilitate the introduction of new products and strengthen market functions in future. On product development, we will continue to broaden the ecosystem of the derivatives market and step up related market education and promotion, thereby fostering talent development in the industry and encouraging greater investor participation in the securities and futures markets.
(2) The Government, regulators and the HKEX are committed to deepening and expanding mutual access between the Mainland and Hong Kong capital markets. With strong support from the Central People's Government, various enhancements and new products were introduced under the mutual market access mechanism in recent years, fostering integration and concerted development of the two markets. Notably, Northbound trading of Swap Connect was officially launched in 2023, marking the first mutual access arrangement in the derivatives space. This enables overseas investors to participate in onshore Renminbi interest rate swaps through a convenient and secure channel, meeting their demand for managing Renminbi interest rate risk through derivatives.
We will continue to maintain close communication with the Mainland authorities and actively pursue and implement mutual access initiatives supported by regulators of the two places, including the introduction of offshore treasury bond futures in Hong Kong, so as to provide effective offshore risk management tools for treasury bond investment in Hong Kong. Meanwhile, we will follow up with the Mainland authorities on further expansion and enhancement proposals, exploring measures to promote two-way capital flows between the two places and broadening the product scope under mutual access. Specific enhancements will be announced in a timely manner once they are ready for implementation.
(3) and (4) The International Monetary Fund (IMF) conducted an assessment of Hong Kong's financial system in 2021 under the Financial Sector Assessment Program. Overall, the IMF affirmed Hong Kong's position as a major international financial centre, recognising its resilient financial system, robust regulatory and supervisory frameworks as well as sound macroeconomic and prudential policies. Meanwhile, the IMF made recommendations to further strengthen the resilience of Hong Kong's financial system, including enhancing the governance structure of the HKFE Clearing Corporation Limited (HKFE Clearing). It also suggested that, under an appropriate governance framework, the HKEX could consider consolidating its clearing houses, namely the Hong Kong Securities Clearing Company Limited (HKSCC), HKFE Clearing and the SEHK Options Clearing House Limited (SEOCH), to improve efficiency. To this end, the HKEX conducted an independent review of its overall risk management and related governance in 2021 and fully implemented the recommendations in 2023 after consulting the SFC to strengthen its overall governance and risk management.
At present, the HKSCC, the HKFE Clearing and the SEOCH under the HKEX provide participants with integrated clearing, settlement, custody and nominee services for securities, futures and options products respectively. Although these services are delivered through separate legal entities, the HKEX has been pursuing operational and technological integration to enhance capital efficiency across markets. For instance, the HKEX is developing the Orion Derivatives Platform to facilitate the introduction of new products, improve market microstructure, and further strengthen trading, clearing and risk management functions in future. The new platform will offer clients an enhanced trading and clearing experience, including the potential to support near 24-hour trading, additional order types, industry-aligned interfaces, and improved testing and connectivity. Furthermore, the HKEX optimised its collateral arrangements under its clearing houses and the cross-product margin arrangements of its futures market clearing house in October 2025 and April 2026 respectively, including adjustments to the calculation of interest paid on cash collateral to participants and reduction in accommodation charges for non-cash collateral.
The Government will continue to support the SFC and the HKEX in enhancing market efficiency. In particular, we have invited the HKEX to study ways to reduce the funding costs of collateral provision by market participants, fully taking into account different factors such as Hong Kong's international competitiveness and market risks. This includes exploring expansion of eligible collateral types and cross-margining arrangements across clearing houses, with a view to further improving collateral efficiency. The SFC and the HKEX will announce the enhancement measures in due course.
Ends/Wednesday, June 17, 2026
Issued at HKT 12:00
Issued at HKT 12:00
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