Korea Exchange (KRX) is providing a voluntary clearing service for Korean interest rate swap contracts in accordance with G20 obligations for OTC derivatives clearing.
KRX predicts this new service will cut
systematic risks in OTC derivative clearing and improve market transparency.
The service has been temporarily offered to 35 exchange members on a voluntary basis until June 30 2014. After that, all won interest rate contracts have to be cleared through KRX on a compulsory basis.
KRX says it will be the third central counterparty in the world to offer mandatory clearing of OTC derivatives following Japan and the USA.
Relevant laws were passed by the Korean government in March 2013, paving the way for a central counterparty to clear OTC derivatives transactions, commencing with interest rate swaps, the most widely used derivative in South Korea.
Reporting of OTC transactions to governmental authorities in South Korea is required under the Financial Investment Services and Capital Markets Act.