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SGX to Begin OTC Derivatives Clearing

The Singapore Exchange (SGX) is to launch Asia’s first central clearing platform for over-the-counter financial derivatives next month as it seeks to dominate the fledgling business in the region.

The exchange plans to start with the clearing of interest rate swaps denominated in Singapore and US dollars, subject to regulatory approval.

A spokesperson for the exchange tells Squawkbox that it may expand the service to other products, such as FXoptions and forwards, depending on demand from its members and customers. SGX’s AsiaClear central counterparty clearing business already offers a platform for clearing OTC contracts in energy and commodities derivatives.??

The new service will enhance Singapore’s global standing as a market for trading of interest rate derivatives and foreign exchange, the exchange says.

Singapore was ranked the second largest interest rate derivatives and FX centre in Asia, and fourth largest FX centre globally in a survey released last month by the Bank for International Settlements (Squawkbox, 6 September). ??

SGX, says its AsiaClear service is well aligned with global measures to reduce systemic risks and enhance risk management standards across the financial sector.

Singapore has endorsed calls by the Group of 20 leading economies for all standardised OTC derivative contracts to be traded on exchanges or electronic trading platforms, where appropriate, and cleared through clearing houses by the end of 2012 at the latest.??

To date, 10 international and regional banks have applied for membership to the IRS clearing service including Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, HSBC, Standard Chartered, the Royal Bank of Scotland, and local lenders DBS Bank, OCBC Bank and United Overseas Bank. Together these banks account for 90% of the trading of interest rate swaps in Singapore, according to the exchange.

The membership is likely to expand further and may include an additional set of global banks – Goldman Sachs, JP Morgan Chase and Morgan Stanley, according to Muthukrishnan Ramaswami, president of SGX.

“Singapore is Asia’s choice location for trading and post-trade activity for OTC financial derivatives. We are pleased to offer banks access to a wider CCP network and prudent risk management, which facilitate building businesses with global scale,” Ramaswami says.

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