Singapore’s SGX, the new home for Asian NDF’s

Since the Lehaman brothers collapse regulators, governments and industry bodies have been keen to move the OTC markets on exchange

Since the Lehaman brothers collapse regulators, governments and industry bodies have been keen to move the OTC markets on exchange in an attempt to reduce counterparty and settlement risk.

The NFA along with other major regulators has been reducing the leverage traders receive from their brokers, exchanges are revolutionising their products to attract more flow. CME has introduced micro FX contracts which try to mirror the smaller contracts available in the spot market like mini and micro lots.

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Singapore Asia’s financial hub is home to the second largest exchange in the region. Strategically located it is home to some of the largest companies in Asia and has daily FX volumes of around $314 billion (April 2011 SFEMC Survey).

The SGX is introducing a centrally cleared service for NDF’s, following the successful launch of Interest Rate Swaps in 2010. The SGX is positioning itself as the leading player in OTC transactions traded on the exchange.

The move comes as new rules in most Group of 20 economies are forcing trades in many classes of over-the-counter (OTC) derivatives to be put through a central clearer, which will provide trading counterparties with a guarantee if the other party defaults.

While Singapore has not bought in any mandatory requirements for central clearing, the SGX said it believes new rules in the U.S. requiring FX derivatives like non-deliverable forwards to be cleared along with the new Basel III rules will drive a strong take-up of its services.

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“Demand for OTC traded financial derivatives clearing will grow rapidly,” said SGX CEO Magnus Bocker.

“Asia is the world’s fastest-growing region and this service will benefit our members as they grow their businesses here.”

SGX will offer clearing services for non-deliverable forwards of the Yuan, Indonesian Rupiah, Indian Rupee, Korean won, Malaysian Ringgit, Philippine Peso and Taiwanese Dollar.

The move follows SGX’s launch of a clearing service for Singapore dollar interest rate swaps last November, which has seen almost $80 billion cleared so far.

The Chicago Mercantile Exchange was the first to launch a centrally cleared product for NDF’s; Clearport a joint venture with ICAP earlier this year offer clearing services on Latin American NDF’s starting with the Chilean Peso. The market is set to rise across Asia and Latin America where the bulk of NDF contracts are traded.

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