OTC Clearing Hong Kong Limited (OTC Clear), a subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), announces that the Securities and Futures Commission has granted approval of its clearing services for cross currency swaps. OTC Clear expects to launch the service in August of this year.
OTC Clear will initially provide clearing for swaps in the USD/CNH (US dollar/Offshore Renminbi, or RMB) currency pair. The swaps are traded actively in Hong Kong, where they are often used by issuers in the RMB - or dim sum - bond market to swap the proceeds into another currency.
"This launch is an important milestone for HKEX and OTC Clear that illustrates our ambitions in FIC (fixed income and currency) and our opportunities as the RMB becomes a more international currency," said HKEX Chief Executive Charles Li. "When we announced our 2016-2018 Strategic Plan earlier this year we said we intended to offer a broader product suite in OTC Clear that can deliver tangible benefits to market users."
OTC Clear is the first international clearing house to provide clearing for USD/CNH cross currency swaps. OTC Clear provides a Payment versus Payment - or PvP - settlement solution through the Real-Time Gross Settlement system operated by the Hong Kong Monetary Authority, which eliminates so-called "Herstatt" or settlement risk.
"We have worked with our stakeholders to develop an innovative service to address the significant credit and capital constraints faced by market participants when trading OTC with certain counterparties," Mr Li said. "We see this as an important strategic initiative for HKEX and OTC Clear, and for the continued development of Hong Kong's OTC derivatives market."
About OTC Clear
OTC Clear is a recognised clearing house under section 37 of Hong Kong's Securities and Futures Ordinance. It is also recognised as a third country central counterparty by the European Securities and Markets Authority, which allows clearing houses located outside the European Union to offer clearing services to certain European financial institutions. In addition, OTC Clear has also obtained an order of exemption from registration as a Derivatives Clearing Organization (Exempted DCO status) from the US Commodity Futures Trading Commission that allows it to admit US banks as clearing members and is recognised as a prescribed facility under the regime for mandatory central clearing of OTC derivatives in Australia.
OTC Clear currently also offers clearing services for interest rate swaps denominated in Renminbi, Hong Kong Dollars, US Dollars and Euros, and non-deliverable forward currency swaps referencing Renminbi, Taiwan Dollars, Korean Won and the Indian Rupee.
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