New rules designed to boost transparency in the global derivatives market could hurt liquidity in Asia unless regulators agree to soften their impact, the Wall Street Journal reported Wednesday, citing a top official from the Hong Kong Monetary Authority. Under the new rules, banks and other market participants must trade most of the derivatives through central clearing houses and trade repositories, instead of the private market. The changes, which took effect in the United States earlier this month and are being rolled out across Europe and Asia, raise the cost of trading and could weigh on trading volumes. Howard Lee, executive director of monetary management in Hong Kong’s de facto central bank, urged regulators to phase in the new rules gradually to mitigate their impact on the US$633 trillion swaps market, the report said. Derivatives, mostly swaps, are used by companies and banks to hedge everything from interest rate risk and fluctuations in currency markets.
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