Interest Rate Swap Goes on-Exchange as Korea Mandates CCP

The Korea Exchange (KRX) has begun on March 3rd, 2014 to provide voluntary Clearing services for the Korean Won (KRW) denominated Interest Rate Swap (IRS) contracts in order to meet the G20 mandate of September 2009 on over-the-counter (OTC) derivatives clearing.

According to the announcement, the KRX expects the new service will significantly lower systemic risks in OTC Won derivative clearing and also improve overall market transparency in Korea.

The service is currently only offered to thirty five members of the exchange on a voluntary basis until June 30. Thereafter, all KRW-IRS contracts are to be cleared through KRX on a mandatory basis, making KRX the third Central Counterparty (CCP) in the world to offer mandatory clearing of OTC derivatives after Japan and the US.

The next market expected to require CCP clearing is Europe, where the EMIR regulations will presumably mandate it later this year. Other regional venues which have recently established themselves as CCPs, include HKEx in Hong Kong, Moscow Exchange in Russia and the Dubai Gold and Commodities Exchange in the Middle East, but none of them so far, enjoys a government mandate over OTC derivatives clearing.