SFC Class 12 Regulated Activities

Hong Kong License No. 12
Provides customer settlement services for over-the-counter derivatives trading

Comprehensive analysis of the SFC Type 12 license – from the legal definition of customer settlement services to CCP structure, from the list of recognized central counterparties to settlement assurance and customer asset protection, from application requirements to implementation status and transition arrangements. AIYING provides professional Type 12 license application and compliance consulting services.

HK$3,000 million

Minimum paid-in capital (proposed)

4 companies that recognize the CCP

Central counterparty clearing agency

Partially effective

Licensing system implementation status

Section 1

What is a Type 1 licence2? Which organizations need to apply for it?

Legal definition

According to Part 12 of Schedule 5 to the Securities and Futures Ordinance (Chapter 571), Type 12 regulated activity refers to "providing client clearing services for OTC derivative transactions." Specifically, this means providing clearing and settlement services for clients' OTC derivative transactions through a central counterparty (CCP).

In short, if an institution acts as a clearing member, representing clients in the centralized clearing and settlement of OTC derivatives transactions through an accredited central counterparty (such as OTC Clearing Hong Kong Limited), then that institution must hold a Type 12 license. Type 12 is a license specifically for the "clearing side" within the SFC's OTC derivatives regulatory regime, complementing Type 11 (which targets the "trading side").

Policy implementation status alert

The complete licensing regime for Type 12 is currently only "partially in effect." On September 1, 2016, the SFC implemented certain provisions of Type 12, primarily to define "excluded services"—that is, to clarify which activities are not subject to Type 12 regulation. A complete independent license application regime is being gradually implemented along with the advancement of the new OTC derivatives regime. The following data marked "[Proposed]" is derived from the SFC's draft FRR amendments and professional analysis, and has not yet officially taken effect; please refer to the SFC's final announcement for accuracy.

Quick Reference

Item content
Regulated activity number Category 12 (RA12)
Legal basis Part 12 of Schedule 5 to the Securities and Futures Ordinance
Suitable Clearing members that provide OTC derivatives settlement services
regulatory agency The Securities and Futures Commission (SFC) of Hong Kong
Introduction time 2012 SFO Revision (concurrent with RA11)
Partial effective time September 1, 2016
Full effective time With the gradual advancement of the new OTC derivatives system
俗稱 "OTC Derivative Instruments Customer Settlement License"

See the official SFC documentation →

Business trigger conditions

✓ As a CCP clearing member, I submit OTC derivatives transactions to an approved CCP for centralized settlement on behalf of my clients.

✓ Provide settlement and clearing services for clients' OTC derivatives transactions (client clearing)

✓ Act as an intermediary to provide settlement channel services between customers and CCPs.

✓ Holding and managing margins and collateral related to OTC derivatives settlement for clients.

✓ Provide clients with settlement confirmation and reconciliation services for OTC derivatives transactions .

CCP settlement is only conducted for our own (proprietary) OTC derivatives transactions and does not involve client settlement.

✕ Banking institutions (authorized institutions) – regulated through HKMA registration rather than SFC license.

✕ Only provides execution services for OTC derivatives trading, and does not involve settlement (belongs to Type 11).

✕Automated Trading Services (ATS) that only offer OTC derivatives trading (belonging to the expanded Type 7 scope)

✕ Only provides settlement services for non-OTC derivative products (such as exchange-traded futures/options).

✕ Only provides settlement-related technical systems or infrastructure, and does not directly participate in the settlement process.

The unique features of Type 1 licence2

Shield 1

CCP Framework Core

License No. 12 operates within the framework of Central Counterparties (CCPs). Licensed institutions must settle accounts with customers through CCPs recognized by the SFC. Currently recognized CCPs include OTC Clearing Hong Kong Limited (a subsidiary of the Hong Kong Stock Exchange), CME, JSCC, and LCH Limited.

Partially effective special status

License No. 12 is the only license among all SFC license types that is currently in a "partially effective" state. Since September 2016, only the "exclusionary services" clause has been defined. The complete license application system and capital requirements are still under development, and applicants should closely monitor the latest announcements from the SFC.

Division of labor between the transaction end and the settlement end

Within the SFC's OTC derivatives regulatory framework, License 11 is for "dealing/advising," while License 12 is for "clinic clearing." These two types of licenses complement each other, and some large institutions may require both types of licenses simultaneously.

Latest policy updates

June 2026
HKMA and SFC jointly consult on revisions to mandatory settlement rules (standard calculation period, etc.).

June 2025
The consultation period for the SFC FRR revision has ended, and the Type 11/12 capital requirements are entering the final determination stage.

September 29, 2025
Enhanced version of the mandatory reporting system for OTC derivatives comes into effect (ISO 20022 standard, UPI, etc.)

April 1, 2025
SFC resumes charging the annual license fee (Commercial Ownership Certificate (RO): HK$4,740/year/per RA class).

June 2024
SFC has updated its Competency Guidelines, adding Paper 13 and Paper 14 exam subjects (applicable to RA11/RA12).

September 1, 2016
Type 12 terms take effect, defining the scope of "excluded services".

Section Two

Which organizations need to apply for Type 1 licence2?

International Bank OTC Clearing Business

Major international banks in Hong Kong act as clearing members of OTC Clear, providing centralized settlement services for institutional clients on OTC derivatives such as interest rate swaps and foreign exchange forwards.

Recommended path

HKMA registered (accredited body) rather than SFC Type 12 license

Core concerns

Banks, as accredited institutions, are typically regulated by the HKMA, but it needs to be confirmed whether any non-bank subsidiaries require independent application for Type 12 certification; they must also comply with the HKMA's requirements regarding OTC derivatives settlement.

Non-bank clearing members

Non-bank financial institutions (such as large brokers or clearing service providers) become clearing members of recognized CCPs, providing settlement channels for OTC derivatives to their clients.

Recommended path

Type 12 (Provides client settlement services for over-the-counter derivatives trading)

Core concerns

Extremely high capital requirements [Proposed] (paid-in capital starting from HK$3,000 million), necessitating the establishment of a robust settlement risk management framework and customer asset segregation and protection mechanisms.

Comprehensive OTC derivative products and services provider

Large financial groups in Hong Kong need to cover the entire value chain from trading to settlement to simultaneously provide OTC derivatives trading execution and client settlement services.

Recommended path

Type 11 + Type 12 (Transaction End + Settlement End)

Core concerns

It is necessary to simultaneously meet the capital requirements and compliance obligations of both types of licenses, internal firewalls and conflict of interest management, and a unified risk management framework.

CCP Technology Service Provider

Fintech companies provide settlement-related technology systems, reconciliation platforms, or risk management tools to CCPs or clearing members, but do not directly participate in the customer's settlement process.

Recommended path

Type 12 licenses are usually not required.

Core concerns

A careful assessment of business boundaries is necessary – if you only provide the technical system and do not directly handle customer billing, Type 12 penalties are generally not triggered; however, if the technical services extend to actual billing execution, a license may be required.

Section 3

CCP Framework and Customer Settlement Structure

core points

The regulatory logic behind License No. 12 revolves around "centralized clearing by a central counterparty (CCP)." Under the G20 financial reform framework, standardized OTC derivatives transactions must be centrally cleared through an approved CCP to reduce systemic risk. License No. 12 is specifically designed for institutions providing clearing access services to clients within this framework.

CCP framework three-tier structure

First level: Recognizing the central adversary (CCP)

An SFC-approved central counterparty clearinghouse responsible for centralized settlement and risk management of OTC derivatives transactions.

Second tier: Clearing Members

Financial institutions that obtain CCP membership directly participate in the CCP's settlement system. Clearing members are divided into two categories: "proprietary clearing members" who only settle their own transactions and "customer clearing members" who provide settlement services to customers.

Only clearing members that provide settlement services to clients need a Type 12 license. Members that only conduct their own settlements do not need one.

Third layer: End Clients

Institutional clients who participate in CCP settlement indirectly through clearing members. Clients do not deal directly with the CCP, but settle through clearing members holding Type 12 licenses.

CCP framework three-tier structure

CCP name Address Products
OTC Clearing Hong Kong Limited Hong Kong Interest rate swaps (IRS), non-deliverable forwards (NDFs), etc.
CME (Chicago Mercantile Exchange) United States Interest rate swaps, credit default swaps, etc.
JSCC (Japan Securities Clearing Corporation) Japan Interest rate swaps, etc.
LCH Limited Australia [formerly the United Kingdom] Interest rate swaps, foreign exchange forwards, etc.

SFC may increase the number of recognized CCPs based on market developments. Applicants should pay attention to the latest announcements from SFC.

OTC Clear members who provide customer settlement services (for reference)

The following list is from the official disclosure of HKEX OTC Clear. These institutions are currently registered with the HKMA as banks (accredited institutions) to provide customer settlement services. Non-bank institutions wishing to provide similar services are expected to need to apply for an SFC Type 12 license.

Organization name 類型
Bank of China (Hong Kong) Limited Bank (Authorized Institution)
China Construction Bank (Asia) Corporation Limited Bank (Authorized Institution)
Goldman Sachs Asia Bank Limited Bank (Authorized Institution)
The Hongkong and Shanghai Banking Corporation Limited Bank (Authorized Institution)
Industrial and Commercial Bank of China (Asia) Limited Bank (Authorized Institution)
Morgan Stanley & Co. International plc International financial institutions
Standard Chartered Bank Bank (Authorized Institution)

OTC Clear members who provide customer settlement services (for reference)

Dimensions Bank (Authorized Institution) non-bank financial institutions
regulatory agency HKMA (Hong Kong Monetary Authority) SFC (Securities and Futures Commission)
License/Registration Method HKMA Registration (RA12) SFC Type 12 License
Capital requirements Comply with HKMA bank capital adequacy requirements Compliance with SFC FRR requirements [Proposed]
Applicable Laws and Regulations Banking Ordinance + SFC Subsidiary Regulations Securities and Futures Ordinance + FRR
Advantage With an existing banking license and a mature compliance framework, Independent application, greater flexibility
challenge Must meet dual regulatory requirements of banks and SFC High capital requirements necessitate building a compliance framework from scratch.
Section Four

What are the requirements for applying for a No. 12 license plate?

Financial resource requirements

⏳ The following capital requirements are derived from the SFC FRR revision draft and analysis by professional institutions. They are still in the consultation stage, and the final figures are subject to the official announcement by the SFC.

Project requirements Specific standards status
Minimum paid-in capital HK$3,000 million Proposed
Minimum quick capital HK$1,500 million Proposed
Risk capital ratio Not lower than the prescribed level Proposed
capital adequacy ratio Settlement risk exposure must be covered. Proposed
Default Fund Contribution Pay according to CCP requirements Confirmed

The capital requirements for License 12 are expected to be similar to those for Type 3 (leveraged foreign exchange trading), reflecting the credit and settlement risks involved in client settlement services. Furthermore, licensed institutions are required to contribute to the default fund in accordance with the rules of the CCP they have joined, which is a core component of the CCP's risk management framework.

Staffing requirements

Project requirements Specific standards
Responsible Personnel (RO) At least two people are required, each of whom must pass HKSI Paper 1 + Paper 7 + Paper 13 + Paper 14.
RO industry experience At least 3 years of relevant industry experience, including at least 2 years in OTC derivatives clearing, settlement or related fields.
Compliance Officer At least one full-time compliance officer with experience in OTC derivatives clearing compliance.
Risk Management Director At least one dedicated risk management manager familiar with CCP settlement risk management.
Operations Team Operations personnel with experience in settlement operations, reconciliation, and margin management
HKSI Examination Subject Description

Paper 1: Basic Securities and Futures Regulations | Paper 7: Financial Market Practices | Paper 13: OTC Derivatives Regulations (Newly Established, Specifically for RA11/RA12) | Paper 14: OTC Derivatives Practices (Newly Established, Specifically for RA11/RA12)

註：Paper 13和Paper 14是SFC《勝任能力指引》（2024年10月版）中為RA11/RA12新設的考試科目，將在RA12牌照制度正式實施時由HKSI推出。 RO需通過Paper 1+7+13+14，LR需通過Paper 1+7+14。

Staffing requirements

✓ Settlement Risk Management Framework: A comprehensive framework covering credit risk, liquidity risk, and operational risk.

✓ Client asset segregation mechanism: Client margin deposits and collateral must be strictly segregated from the company's own assets.

✓ Default Handling Procedures: Clear emergency handling procedures for customer defaults and CCP defaults

✓ Reconciliation System: Daily transaction and position reconciliation mechanism with CCP

✓ Margin Management System: Real-time margin calculation, collection, and management capabilities

✓ Anti-Money Laundering/KYC Procedures: Customer due diligence procedures compliant with SFC AML/CFT requirements

✓ Business Continuity Plan (BCP): Ensures the continuity of billing services under extreme circumstances.

✓ Information security system: Network security measures to protect customer data and transaction information.

IT system requirements

✓ CCP Connection System: Enables secure and stable technical integration with settlement systems that recognize CCPs.

✓ Instant Settlement Processing: Supports instant settlement confirmation and processing for OTC derivatives transactions.

✓ Margin Calculation Engine: Supports real-time calculation of initial margin (IM) and variable margin (VM)

✓ Customer Reporting System: Provides customers with settlement confirmations, holding reports, and margin reports.

✓ Regulatory Reporting System: Submit required regulatory reports and data to the SFC

✓ Disaster recovery system: Comprehensive data backup and disaster recovery solutions, with RTO and RPO meeting regulatory requirements.
Claim

Character Exam Requirements Experience requirements Continuous training
Responsible Personnel (RO) Paper 1 + 7 + 13 + 14 3+ years of industry experience, 2+ years in OTC derivatives clearing/settlement field At least 10 hours of CPT per year
Licensed Representative (LR) Paper 1 + 7 + 14 Relevant industry experience At least 5 hours of CPT per year
risk assessment
important hint

Paper 13和Paper 14是SFC《勝任能力指引》（2024年10月版）中為RA11/RA12新設的考試科目，將在RA12牌照制度正式實施時由HKSI推出。註：RO需通過Paper 1+7+13+14共四門考試，LR需通過Paper 1+7+14共三次考試（LR無Paper 13）。建議密切注意HKSI的最新考試安排。

Quick self-assessment of eligibility for Type 12

Check the following criteria to quickly assess whether your organization meets the basic eligibility requirements for a Class 12 license:

  • Our company has been incorporated in Hong Kong or intends to establish an entity in Hong Kong.
  • Has obtained or intends to apply for liquidation membership in a recognized CCP
  • The company intends to provide OTC derivatives settlement services to its clients (not just itself).
  • Able to meet the minimum paid-up share capital requirement of HK$3,000 million [Proposed]
  • Able to meet the minimum quick capital requirement of HK$1,500 million [Proposed]
  • 至少有2名擬任RO已通過或計劃通過HKSI Paper 1+7+13+14
  • The proposed RO must have at least 3 years of relevant industry experience (including 2 years in the field of OTC derivatives clearing/settlement).
  • A customer asset segregation and protection mechanism has been established or is planned to be established.
  • A technical interface system with the CCP has been established or is planned to be established.
  • A comprehensive settlement risk management framework has been established or is planned to be established.
Section Five

Application process for Type 12

Estimated overall timeframe: 6-9 months (it is recommended to start preparations 9-12 months in advance)

Demand analysis and consulting

Phase 1: Preliminary Preparations

About 3-6 months

  • Determine the business model and license combination requirements (whether Type 11 is also required).
  • Apply to become a clearing member of an approved CCP (such as OTC Clear).
  • Recruit and assign key personnel (RO, compliance officer, risk management officer, etc.)
  • 安排RO參加HKSI考試（Paper 1+7+13+14），LR參加Paper 1+7+14
  • Establish a settlement risk management framework and internal control system
  • Develop or procure CCP connection systems and settlement processing systems
  • Prepare customer asset isolation and protection solutions
  • Develop a business plan.
  • Prepare SFC application form and supporting documents
Signing Mou and launching an investigation

Phase Two: Submission and Review

Approximately 15 weeks+

  • Submit license application through SFC WINGS online system
  • Submit all supporting documents (business plan, compliance manual, IT system documents, etc.).
  • The SFC will conduct a preliminary review and may request supplementary information.
  • SFC inquired in depth about the business model and risk control framework.
  • SFC may require an on-site inspection or system testing.
  • SFC assesses CCP membership and settlement capabilities.
Complete the investigation and sign the Spa

Phase Three: Approval and Launch

About 2-4 weeks

  • Received SFC's Approval-in-Principle.
  • Meet the pre-approval conditions set by the SFC (if any).
  • Obtaining a formal license, subject to the SFC approval letter.
  • Complete the final activation of CCP clearing members.
  • Start customer settlement service
  • Entering the continuous compliant operation phase

Application Fee

The following fees are based on the official fee schedules for other RA types by SFC. The formal application fee for Type 12 will be confirmed when the licensing system is implemented.

Expense items Amount of money 類型
Corporate application fee HK$4,740 per type of RA One-time use (refer to other RA type standards)
RO application fee HK$2,950 per type of RA One-time use (refer to other RA type standards)
LR application fee HK$1,790 per type of RA One-time use (refer to other RA type standards)

Common application obstacles and corresponding suggestions

CCP membership status not confirmed

Applying for a Type 12 license requires having already obtained or being in the process of applying for CCP-recognized clearing membership. Slow progress in the CCP membership application will directly impact the SFC license review process. It is recommended to initiate the CCP membership application as soon as possible.

Inadequate settlement risk management framework

Type 12 involves settlement risks with a significantly higher complexity than general license types. The SFC will focus on reviewing the management structure for credit risk, liquidity risk, and operational risk. It is recommended to refer to the CPMI-IOSCO FMI principles when establishing the structure.

Insufficient customer asset protection mechanisms

The segregation of client margin deposits and collateral is a core focus of SFC reviews. A clear client asset segregation account structure and legal arrangements are required.

The integration of IT systems with the CCP is not yet mature.

Technical integration with the CCP requires extensive testing and verification. It is recommended to complete the integration with the target CCP before applying.
The system connectivity test (UAT) was conducted, and detailed technical documentation was prepared.

Key personnel failed the exam

Paper 13 and Paper 14 are new subjects added to the SFC Competency Guide for RA11/RA12, and will be introduced by HKSI when the licensing system is officially implemented. ROs and LRs are advised to pay close attention to the latest examination arrangements from HKSI and prepare accordingly.

List of key application documents

文件 (1)

SFC License Application Form (Form A1/A2)

文件 (1)

Business Plan

文件 (1)

Settlement Risk Management Framework Document

文件 (1)

Customer asset segregation solution

文件 (1)

Compliance manual and internal control system

文件 (1)

IT system architecture and security documents

文件 (1)

CCP membership certificate or application progress

文件 (1)

RO/LR exam qualification certificate and resume

文件 (1)

Financial statements and proof of capital adequacy

文件 (1)

Anti-money laundering/KYC policies and procedures

文件 (1)

Business Continuity Plan (BCP)

文件 (1)

Insurance Arrangement Documents

AIYING (艾盈) reminds you:

Due to the complexity of CCP settlements involved in Type 12 licenses, the SFC's review may be more in-depth than for general license types. It is recommended to prepare thoroughly before applying and consider hiring a professional advisor. AIYING provides full-process consulting services from CCP membership application to SFC license approval.

Section Six

Continuing compliance obligations

core points

After obtaining a Type 12 license, the licensed entity must continuously comply with the SFC's compliance requirements. Due to the systemic risks involved in customer settlement services, the SFC's ongoing oversight of Type 12 licensees is expected to be more stringent than that of other license types. The main ongoing compliance obligations are as follows.

Financial resources continue to be compliant

  • Continuously meet the minimum paid-in capital and quick capital requirements
  • Submit FRR financial reports to SFC monthly
  • Maintaining the default fund contribution required by the CCP
  • Management of the adequacy of margin and collateral
  • Continuous monitoring and reporting of large risk exposures

Settlement risk management

  • Daily transaction and position reconciliation with CCP
  • Real-time monitoring of customer margin adequacy ratio
  • Continuous monitoring of credit risk limits
  • Stress tests for liquidity risk (conducted regularly)
  • Regular drills and updates to the default handling procedure
文件 (1)

Client asset protection

  • Strict segregation of client margin and collateral
  • Daily reconciliation and verification of customer assets
  • Provide clients with position and margin reports regularly.
  • Compliance management of client asset investments (if applicable)
  • Asset protection procedures in case of customer default

Personnel and Training

  • Continuing Professional Training (CPT) for RO and LR
  • Changes in key personnel must be promptly notified to the SFC.
  • Regularly assess personnel competence
  • Ensure the independence of the compliance and risk control teams.

IT Systems and Operations

  • Continuous maintenance and upgrades of the CCP connection system
  • Regular review and updating of cybersecurity measures
  • Regular testing of business continuity plans
  • Compliance review procedures for system changes
  • Data protection and privacy compliance
09 Warning

Supervision Report and Inspection

  • Submit all regulatory reports required by the SFC on time.
  • In conjunction with SFC's regular and irregular on-site inspections
  • Timely notification of major events (such as system failures, customer defaults, etc.)
  • Annual compliance review and internal audit
  • Annual audit by external auditors

Annual operating cost reference

Expense items Amount of money Remark
SFC Annual License Fee (Corporate) HK$4,740/year/per category of RA Collection will resume on April 1, 2025 (non-RA3 standard).
SFC Annual License Fee (per RO) HK$4,740/year/per category of RA Collection will resume on April 1, 2025 (at the same rate as corporation fees).
SFC Annual License Fee (per LR) HK$1,790/year/per category of RA Collection will resume on April 1, 2025 (non-RA3 standard).
CCP Membership Annual Fee According to the regulations of each CCP Such as OTC Clear membership fees
Default Fund Contribution Calculated according to CCP regulations Typically linked to settlement volume and risk exposure.
External audit fees Depending on company size Annual Audit
Compliance and IT system maintenance Depending on company size Continuing operating costs
Professional Insurance Depending on the scale of the business Professional indemnity insurance, etc.
risk assessment
core points

After obtaining a Type 12 license, the licensed entity must continuously comply with the SFC's compliance requirements. Due to the systemic risks involved in customer settlement services, the SFC's ongoing oversight of Type 12 licensees is expected to be more stringent than that of other license types. The main ongoing compliance obligations are as follows.

Section Seven

Implementation Status and Strategy Recommendations

Implementation Status Timeline

Implementation Status and Strategy Recommendations

2012
SFO revisions approved, introducing the Type 11 and Type 12 licensing framework.

September 1, 2016
Type 12 terms take effect, defining the scope of "excluded services".

June 2024
SFC has updated its Competency Guide, adding Paper 13 and Paper 14 exam subjects (for RA11/RA12).

June 2025
SFC releases consultation paper on FRR revisions, proposing draft Type 11/12 capital requirements.

September 29, 2025
The enhanced version of the mandatory reporting system for OTC derivatives has officially come into effect (ISO 20022 standard, UPI, etc.).

June 2025
The consultation period for the SFC FRR revision has ended, and the Type 12 capital requirements are entering the finalization stage.

June 2026
HKMA and SFC jointly consult on revisions to mandatory settlement rules (standard calculation period, etc.).

To be determined  Proposed/Pending 
The Type 11/12 license application system has been officially implemented (to be announced after the FRR revision is finalized).

Confirmed matters

Type 12的法定定義和監管架構已確定；認可CCP名單已公佈（共四家）；HKSI考試科目（Paper 13/14）已在《勝任能力指引》中確立；強制性匯報制度增強版已於2025年9月生效。

Pending determination

Formal capital requirements for Type 12 (FRR under revision); complete independent license application process and timeline; specific details of transitional arrangements; coordination mechanism with banking institutions regulated by the HKMA.

Application strategy suggestions

Strategy 1: Early Planning

Suitable for: Large financial institutions that already have CCP membership or are applying for it

  • Initiate your CCP membership application immediately (if you have not yet obtained it).
  • Begin recruiting and training key personnel (arrange HKSI exams)
  • A preliminary version of the settlement risk management framework has been established.
  • Closely monitor the final results of the SFC FRR revision.
  • Submit your application as soon as the system is officially implemented.

Advantages: Seize the market opportunity; licenses can be obtained as soon as the system is officially implemented.

Strategy Two: Observation and Preparation

Suitable for: Financial institutions that intend to enter the market but are still in the evaluation stage.

  • Continuously track SFC policy developments and FRR revision progress
  • Assess business model and licensing portfolio requirements
  • Begin talent development and internal capability building
  • Establish initial contact with the target CCP
  • Formal application preparation will begin once the system is clarified.

Advantages: Reduces uncertainty risk; enables rapid action once policies are clarified.

Strategy 3: Comprehensive License Type

Suitable for: Large financial groups that need to cover the entire value chain of OTC derivatives

  • Simultaneously planning applications for Type 11 and Type 12.
  • Establish a unified risk management framework for OTC derivatives.
  • Allocate capital reasonably to meet the requirements of both types of licenses
  • Design an internal firewall and conflict of interest management mechanism.
  • Consider whether additional license types (such as Type 9 for asset management) are needed.

Advantages: One-stop service capability enhances customer loyalty and competitive advantage.

Market Outlook

Chart Upward Trend

Market Prospects for OTC Derivative Instruments Customer Settlement

  • With the global trend towards centralized settlement of OTC derivatives, Hong Kong's position as an Asian financial center will be further consolidated.
  • OTC Clear's product range is expected to continue expanding, creating more business opportunities for Type 12 licensees.
  • While the barriers to entry for non-bank financial institutions in the customer settlement field are high, early adopters will gain a significant competitive advantage.
  • With the deepening interconnectivity between the financial markets of mainland China and Hong Kong, the demand for cross-border OTC derivatives settlement will continue to grow.
Section 8

FAQs

Type 11 licenses are for the "trading side" of OTC derivatives – institutions that conduct transactions or provide investment advice. Type 12 licenses are for the "settlement side" – institutions that provide settlement and delivery services for clients' OTC derivatives transactions through a central counterparty (CCP). Simply put, Type 11 licenses govern "trading," and Type 12 licenses govern "settlement." Large, integrated financial institutions may require both types of licenses.

The full licensing regime for Type 12 licenses is currently in a "partially effective" state. Some provisions came into effect in September 2016, primarily defining "excluded services." The enhanced version of the mandatory reporting regime for OTC derivatives (not the Type 11/12 licensing regime) will come into effect on September 29, 2025. The capital requirements for Type 12 are still in the FRR revision consultation phase, and the official implementation date of the full licensing application regime has not yet been announced. Institutions intending to apply are advised to pay close attention to the latest announcements from the SFC and prepare accordingly.

As "authorized institutions," banks are typically regulated by the HKMA, not the SFC. Banks that need to provide OTC derivatives settlement services generally register with the HKMA under RA12, rather than applying for a Type 12 license from the SFC. However, non-bank subsidiaries of banks that wish to independently provide such services may need to apply for an SFC Type 12 license. It is recommended to consult a professional advisor for specific advice.

An approved CCP refers to a central counterparty clearing institution recognized by the SFC. Currently, the CCPs recognized by the SFC include: OTC Clearing Hong Kong Limited (a subsidiary of the Hong Kong Stock Exchange), CME (Chicago Mercantile Exchange), JSCC (Japan Securities Clearing Corporation), and LCH Limited. The SFC may add more approved CCPs as the market develops.

As of now, the formal capital requirements for License No. 12 are still in the consultation phase regarding revisions to the Free Rate Revenue (FRR). Based on the SFC's draft FRR revision and analysis by professional institutions, the proposed capital requirements are: a minimum paid-up share capital of HK$3,000 million and a minimum quick capital of HK$1,500 million. This level is similar to Type 3 (leveraged foreign exchange trading), reflecting the high risks involved in client settlement services. The final figures are subject to the official announcement by the SFC.

Responsible Officers (ROs) for License Type 12 must pass four examinations from the HKSI: Paper 1 (Basic Securities and Futures Regulations), Paper 7 (Financial Markets Practice), Paper 13 (OTC Derivatives Regulations), and Paper 14 (OTC Derivatives Practice). Licensed Representatives (LRs) must pass three examinations: Paper 1, Paper 7, and Paper 14 (Paper 13 is not required). Paper 13 and Paper 14 are new subjects for RA11/RA12 in the SFC's Competency Guidelines (October 2024 edition) and will be introduced by the HKSI when the licensing regime is officially implemented.

This depends on the nature of your business. If you only clear CCPs for your own (proprietary) trades and do not involve client clearing, you do not need a Type 12 license. However, if you provide client clearing services for OTC derivatives, you will need a Type 12 license (for non-banking institutions) or HKMA registration (for banking institutions).

由於Type 12涉及結算風險的複雜性，預計整體申請週期為6-9個月。其中前期準備約3-6個月（包括CCP會員資格申請、人員招募及訓練、系統建置等），SFC核准約15週以上。建議提前至少9-12個月啟動準備工作。

The proposed capital requirements for Type 12 are similar to those for Type 3 (minimum paid-up capital of HK$3,000 million and minimum liquid funds of HK$1,500 million), reflecting the higher counterparty and settlement risks involved in both. However, their business scopes are completely different: Type 3 is for leveraged foreign exchange trading, while Type 12 is for OTC derivatives client settlement services.

AIYING provides full-process consulting services for Type 12 license applications, including: business model assessment and license portfolio advice, CCP membership application guidance, recruitment and examination planning, compliance framework and IT system construction consulting, application material preparation and SFC communication, and tracking and interpretation of the latest policy developments. Our team has extensive experience in Hong Kong financial license applications and can provide you with professional and efficient services.

About Aiying

Aiying (License.aiying.cc) specializes in global traditional finance and Web3-related license application and acquisition consulting services. With teams primarily located in Hong Kong, the UAE, and Europe, and strong relationships with local regulators, Aiying has successfully secured applications and smooth operations for leading and mid-tier crypto and traditional institutions. Team members are qualified in Hong Kong, Europe (Ireland), the UK, the UAE, and other jurisdictions, with a global network ensuring 24/7 professional support. Headquartered in Asia, the team brings together experts in operations, marketing, law, regulatory compliance, and accounting, adhering to clients' business objectives to provide comprehensive and in-depth strategies and solutions.
Authoritative guidance

Authoritative guidance

Based on SFC official guidelines and Aiying's practical experience, we provide the most authoritative application guidance.

Useful Checklist

Useful Checklist

Detailed self-checklist and document preparation guide to ensure the completeness and accuracy of application materials

Success Stories

Success Stories

100+ successful case experience summary, avoid common pitfalls and improve success rate

global vision

global vision

Integrate international best practices to ensure the forward-looking and adaptable compliance system

Pre-inspection mechanism

Aiying's "pre-screening mechanism"

To maximize your success rate, Aiying conducts an internal mock review of your application materials before formal submission. Our expert team acts as a regulator, scrutinizing each document from the most rigorous perspective to identify logical loopholes, data inconsistencies, and compliance gaps in advance.

This mechanism allows us to ensure that the materials submitted to regulators are highly professional, complete, and impeccable, thereby minimizing regulatory inquiry rounds, significantly shortening approval times, and reducing the license rejection rate by 67%.