OTC Clear Starts Clearing HONIA-Based Interest Rate Products

The HMA is also encouraging for more HONIA-based products.

OTC Clearing Hong Kong, the central counterparty subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), has begun to offer clearing services of Hong Kong Dollar Interest Rate Swap (IRS) contracts benchmarked to the Hong Kong Dollar Overnight Index Average (HONIA) reference rate.

HONIA is the alternative reference rate to the Hong Kong Interbank Offered Rate (HIBOR), identified last year by the Treasury Markets Association.

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Announced on Thursday, the platform detailed that the first centrally cleared HONIA IRS contract was between Bank of China (Hong Kong) Limited (BOCHK) and the Hong Kong and Shanghai Banking. Corp (HSBC).

“We are very excited to be providing clearing services to the Hong Kong dollar risk-free rate swap, as we support the development of the HONIA-based derivatives market and promote HONIA’s adoption in the financial industry,” Calvin Tai, co-president and chief operating officer, HKEX, said.

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Decommiossing HIBOR?

To support the development of the HONIA market and provide more transparency, OTC Clear has developed a proxy methodology that simulates a HONIA curve.

Though the Hong Kong Monetary Authority (HMA) is encouraging for more HONIA-based products, however, there are no current plans for decommissioning HIBOR.

“As one of the major international financial centers, Hong Kong is carrying forward the IBOR reform with other major financial centers,” Tony Wang, General Manager, Global Markets, BOCHK, added, “The launch of HONIA further enhances the reliability of interest rate benchmarks.”

“HSBC welcomes the launch of clearing services for HONIA-based interest rate products by OTC Clear, which represents a major development of Hong Kong’s derivatives market. As a key industry player in the city, HSBC will continue to actively support the gradual market adoption of HONIA and enrich the suite of HONIA products for other market participants,” said Justin Chan, head of Greater China, Asia Pacific, Global Markets at HSBC.

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