Singapore Exchange Ltd. and Korea Exchange Inc. are exploring joint trade-processing projects for over-the-counter financial derivatives as regulators seek to push more contracts through a clearinghouse.
The companies signed an agreement to work on OTC clearing projects for derivatives, according to an e-mailed statement today. The Singapore-based exchange started Asia’s first OTC clearinghouse in November 2010 while the Seoul-based company, which offers futures and options on the Kospi 200 Index, plans to start processing such transactions in the middle of the year.
U.S. and European regulators are pushing more derivatives through clearing to reduce risk and as fund managers seek access to OTC services. As of this week, companies from JPMorgan Chase & Co. to BlackRock Inc. must have most of their privately negotiated swaps trades backed by a capitalized clearinghouse, under the U.S. 2010 Dodd-Frank Act. In Brussels, rule makers are drafting the European Market Infrastructure Regulation.
“Clearing through a central counterparty is becoming a necessity for OTC market participants,” Muthukrishnan Ramaswami, president of SGX, said in the statement. SGX is seeking “new products, services and partnerships.”
As regulators push banks and brokers to clear, clearinghouses and exchanges are seeking to benefit. LCH.Clearnet Ltd., the largest interest-rate swap clearinghouse, says Asia is its biggest priority this year. The company has held talks to sell a stake to SGX, the operator of Southeast Asia’s biggest stock market, according to three people familiar with the negotiations.
Hong Kong Exchanges & Clearing Ltd., the world’s largest bourse by market value, operates a clearinghouse in the region and Japan Exchange Group Inc. is also seeking to expand its post-trade operations.
Singapore’s central bank released a discussion paper last month about proposals to regulate OTC derivatives transactions. SGX, the only licensed clearinghouse in the city-state, processes non-deliverable forwards and standardized interest-rate swaps in Singapore dollars and U.S. dollars. The Monetary Authority of Singapore has said it may allow other entities to provide clearing and repository services.
“This collaboration will explore possible synergies to better meet the needs of market participants, particularly in the Singapore and Korea markets,” Ho-Chul Lee, president and chief operating officer of KRX, said in the statement. “International awareness of Korea and Singapore OTC derivatives markets will grow, thereby helping us to increase participation levels.”
Derivatives account for between 25 percent and 28 percent of SGX’s total revenue and the company expects to increase income from derivatives by 10 percent to 15 percent this year, Ramaswami has said.