Derivative-dealing banks in Hong Kong have established a forum to pool risk management information and to try to avert trading disasters like those at Barings and Japan's Sumitomo Bank. More than 30 major banks have joined the Hong Kong risk management circle, along with the Hong Kong Monetary Authority (HKMA), which regulates banks' derivative operations in the territory. They will share operational details of their risk management systems on a monthly basis, reasoning that any advantage given to rivals is more than offset by the reduced counter-party risk as a result of the exercise. The HKMA favoured self-regulation - seeing strong internal controls at banks as the surest way to avoid derivative trading losses - and so fully endorsed the new body, senior manager of banking supervision at the authority Frederick Lau said. Participants include international players such as Citibank, Hongkong Bank, Bankers Trust, SBC Warburg, local banks such as Bank of East Asia, and a large number of Japanese banks based in the territory. 'This might just make the difference that saves a counter party,' head of risk management for HSBC (Asia Pacific) Anders Haagen said. It was in the interest of leading banks to share proprietary systems information because overall market risk was lowered by spreading their know-how, Mr Haagen said. Group members would reveal details of their value-at-risk systems, which allow a real-time assessment of a bank's overall exposure to both the underlying market and derivative instruments. Details of banks' stress-testing systems also would be disclosed, Mr Haagen said. Mr Lau said the HKMA would be involved in the forum but would continue to form policy relating to derivative regulation on the basis of international directives. The HKMA has made spot checks of management controls and risk management systems at derivative-dealing banks since February. No 'life-threatening cases' of bad systems were revealed, but in all cases deficiencies were discovered and pointed out to banks, Mr Lau said. In the future, banks might offer companies comprehensive risk management services covering their exposure to financial instruments, once the question of legal liability was fully addressed, Mr Haagen said.