LEADER
>>> Chip Lowry
“Clearing of OTCFX continues to be an evolving topic with more questions than answers at this point,”
include: Barclays Bank PLC, Citibank N.A., Credit Suisse AG, DBS Bank Limited, Deutsche Bank AG, HSBC, Oversea-Chinese Banking Corporation Limited, RBS, Standard Chartered Bank, United Overseas Bank Limited and UBS. As yet it is early days for this new on-exchange clearing activity and volumes have so far been relatively modest as compared with longer established SGX listed products, however, research carried out by the exchange ensures that the facility is demand led.
“We have chosen to clear trades that are between professional clearing members,” explains SGX co- president Muthukrishnan Ramaswami. “Tere have been pretty high bi-lateral risks that they are taking today. Tis way is more capital efficient for them as taking risk on a CCP carries a lower capital rating than bilateral risk, especially when Basle III comes into force.”
In due course Ramaswami expects SGX will extend this model to clearing client trades, and, in due course, probably FX options – of which more later. Te introduction of clearing for NDFs posed a variety of challenges on the technical side which SGX dealt with in a pragmatic and system-agnostic manner. “We are not setting the agenda on what needs to be
24 | january 2012 e-FOREX Muthukrishnan Ramaswami “What needs to be cleared is determined by the
capital requirements for each instrument and therefore what each of our participants wants to do for their various asset classes.”
cleared,” Ramaswami continues. “What needs to be cleared is determined by the capital requirements for each instrument and therefore what each of our participants wants to do for their various asset classes. It is different from an exchange led process. It is what our members want to clear. We are a need fulfiller in this context. As an exchange we work with probably 30 different order management systems in our futures and securities context but we work with them using a FIX protocol or a specific [application programming interface] API. Te providers will usually be able to work with one of those. So it’s about standardising the interfaces rather than standardising the registration mechanisms. Moreover these providers also want to connect to many clearing houses. Tey want to be able to service their clients in multiple jurisdictions. So this is a two-way industry need between the registration systems and the clearing houses. Te OTC execution remains as is. Putting it into a clearing house brings the rigour of margining and rigour of having collateral to support your positions. And having that held in a ring fenced manner in a clearing house and away from any risk you may run from having it with a broker or bank.”
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