HKEx squares up to SGX on OTC derivatives

Hong Kong is gearing up to challenge Singapore's regional dominance in OTC derivatives clearing.

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Hong Kong is gearing up to challenge Singapore's regional dominance in OTC derivatives clearing.

Hong Kong Exchanges & Clearing (HKEx) CEO Charles Li informally announced Thursday that the exchange would begin clearing OTC derivatives next month following approval from regulator the Securities & Futures Commission (SFC). Earlier this month 12 banks and brokers joined HKEx's central counterparty (CCP) OTC Clearing Hong Kong as founding shareholders collectively with 25% of the clearer's share capital, with HKEx owning the remainder. 

The HKEx CCP, first mooted in 2010, will clear deliverable and non-deliverable RMB-denominated OTC derivatives. Li in the bourse's three-year strategic plan identified OTC clearing of equity derivatives as a significant move towards providing a one-stop shop for Chinese investors.

Meanwhile, Amd Ng Nam Sin, the Singapore central bank's deputy managing director, in a speech to International Swaps and Derivatives Association's (ISDA) Asia conference this week urged a cross-border regulatory approach on OTC derivatives clearing in order to avoid the potential for "overlapping, inconsistent, and worse, conflicting rules".

The Monetary Authority of Singapore (MAS) has ruled out mandatory central clearing, which it says could hamper national plans to growth Singapore's share of the US$42.6 trillion regional OTC derivatives market.

Malayan Banking on Thursday became Singapore Exchange (SGX) clearing-house AsiaClear's newest clearing member for OTC derivatives.

Singapore accounts for around 5% of global OTC derivatives trading, primarily targeting the international market - 87% of Singapore's FX OTC derivatives turnover does not involve its domestic currency. In recent months SGX has signed agreements with the Korea Exchange, the Philippines Stock Exchange and the China Financial Futures Exchange (CFFEX) to collaborate on the development of regional derivatives markets.

In the meantime, SGX has applied for recognition for its derivatives clearing activity from the US Commodity Futures Trading Commission and will seek that of the European Securities and Markets Authority later this year.

An ISDA-commissioned report published this week forecast that both Hong Kong and Singapore would continue to position themselves as regional hubs for global banking business, supported by "relatively relaxed regulations".