Hong Kong Exchange and Clearing' subsidiary, OTC Clear, has announced the launch of a client clearing service, ahead of the first phrase of mandatory clearing in Hong Kong, effective July 1.
Following approval by the Securities and Futures Commission (SFC), the new service offers over-the-counter derivatives market participants a "client clearing" relationship with an existing clearing member of OTC Clear that will act as an intermediary of broker.
"The launch of client clearing will enable financial institutions in the region that are not OTC Clear members to enjoy the capital efficiencies of central clearing," said Calvin Tai, head of clearing at Hong Kong Exchanges and Clearing (HKEx).
The clearing mandate in Hong Kong, which is set to come into effect in July, requires market participants to centrally clear certain OTC interest rate derivatives denominated in the G4 currencies and Hong Kong dollars.
OTC Clear said it has also received SFC approval to accept "certain types of high-quality, non-cash collateral from its clearing participants to satisfy their margin requirements", which will provide greater flexibility and may reduce funding costs.
The assets that the HKEx subsidiary said it will initially accept are US Treasuries, Hong Kong Exchange bills and Notes, and offshore bonds issued by China's Ministry of Finance.
Following the new margining rules for derivatives that are not centrally cleared, which took effect in September, there is an increasing trend towards the voluntary clearing of over-the-counter derivatives, according to OTC Clear.
In August last year, OTC Clear became the first international firm to provide clearing for USD/CNH swaps. It has said that it has cleared volume in excess of $2.5 billion in notional value year-to-date, with other regional and global bands expressing interest in this service due to the "capital efficiency".
HKEx won regulatory approval from the Securities and Futures Commission (SFC) to launch its clearing house in October 2013, initially positioning itself to capitalise on reforms mandating OTC trades through clearing, with the service first handling inter-dealer trades.
OTC Clear has 12 clearing members, including six Hong Kong subsidiaries or branches of Chinese banks.