Local banking giant, Bank of East Asia (BEA), has joined the clearing service for interest rate swaps and non-deliverable forwards (NDFs), OTC Clear. The move comes on the back of increased developments in the clearing of OTC transactions post G20 initiatives to migrate OTC instruments to execute on recognized exchanges.
The initiative, that is 75% owned by the Hong Kong Exchange, the country’s main cash and derivatives exchange was authorized by the country’s financial watchdog in October 2013. The Securities and Futures Commission (SFC) granted approval to the new clearing solution which provides clearing on products that will complement Hong Kong’s position as an ideal destination for mainland China’s financial solutions.
The OTC Clear solution follows a global trend by exchanges and regulators to migrate OTC products to centrally cleared systems.
Bank of East Asia becomes the fourth clearing member, the 95-year-old bank is also a founder member of OTC Clear. Other clearing members include; Bank of China (Hong Kong) Limited, The Hong Kong and Shanghai Banking Corporation Limited, and Industrial and Commercial Bank of China (Asia) Limited.
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Twelve members founded the clearing service that will start clearing client trades later this year, including; Agricultural Bank of China Limited, Bank of China (Hong Kong) Limited, Bank of Communications Co., Ltd., Hong Kong Branch, The Bank of East Asia Limited, Barclays Bank PLC, CCB International Securities Limited, Citicorp Financial Services Limited (an affiliate of Citibank N.A.), Deutsche Bank AG, Hong Kong Branch, The Hongkong and Shanghai Banking Corporation Limited, Industrial and Commercial Bank of China (Asia) Limited and LabMorgan Investment Corporation (a subsidiary of JPMorgan Chase & Co).
Gerald Greiner, OTC Clear’s Chief Executive and HKEx’s Head of Global Clearing, commented about the joining of BEA in a statement: “OTC Clear has only been operational for several weeks, but we’re pleased with the momentum and excitement we are seeing among our founding shareholders, We are taking a long-term view on the business and believe it will bring strategic value.”
The first trade to be cleared on the solution was a non-deliverable Renminbi 7-day repo swap. Among its FX offering, OTC Clear provides clearing on four Asian NDF currencies which includes the Chinese Renminbi (CNY), Indian Rupee (INR), Korean Won (KRW) and the Taiwanese Dollar (TWD). All currencies are settled in the greenback (USD) and hold a maximum residual term of 2 years, according to details on the exchange’s website.
Hong Kong has been battling with neighbor, Singapore, to position itself as the leading destination for Chinese financial services; it offers a range of offshore Chinese Yuan FX contracts. A spokesperson for the HKEx commented about the exchange’s strategy in a statement to Forex Magnates: “HKEx aims to be the global exchange of choice for its China clients and its international clients seeking China exposure. HKEx’s vision is to build itself into a leading global vertically-integrated multi-asset class exchange and prepare for the managed but accelerating opening of China’s capital account.”