HKEX Subsidiary Gets Approval for Cross Currency Swaps Clearing

OTC Clearing Hong Kong Limited (OTC Clear), a subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), has received regulatory approval to clear cross currency swaps.

Following the approval, granted by the Securities and Futures Commission, OTC Clear says that it expects to launch the service in August of this year,

OTC Clear will initially provide clearing for swaps in the USD/CNH 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 markets and our opportunities as the RMB becomes a more international currency,” says 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 claims to be 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,” 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.”

HKEX also announced Jacky Mak as the new managing director, head of OTC clearing, where he will be in charge of business development and operations at OTC Clear. Mak will start in this new position effective Monday 25 July and will report into Calvin Tai, HKEX’s head of clearing.

He will succeed Kelvin Lee, who has retired after more than 25 years of service with HKEX and Hong Kong Securities Clearing Company before it became a subsidiary of HKEX.

Mak’s former roles have included chief financial officer of the Hong Kong and Taiwan branch of Societe Generale’s corporate and investment banking unit and director, OTC product development of HSBC’s global banking and markets group in Hong Kong.  Before joining HKEX, he was a Hong Kong-based director in Bank of America Merrill Lynch’s global markets division.

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