OTC Clear launches clearing service for USD/CNH cross currency swaps

OTC Clearing Hong Kong Limited (OTC Clear), a subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX) that provides clearing and settlement services for over-the-counter (OTC) derivative transactions, has announced the launch of its clearing service for cross currency swaps (CCS). OTC Clear is initially providing clearing for swaps in the USD/CNH (US Dollar/Offshore Renminbi, or RMB) currency pair.

OTC Clear is the first international clearing house to provide clearing for USD/CNH CCS.

Charles Li, HKEX

Charles Li, HKEX

HKEX Chief Executive Charles Li said:

OTC FIC (fixed income and currency) market participants face an increasing range of regulatory-driven balance sheet and capital pressures when trading with certain market counterparts, which central clearing via a well-capitalised, internationally recognised clearing house can help to alleviate. This service provides immediate tangible benefits to our stakeholders and should lead to a step-change in trading activity for these instruments. We are pleased to be adding this deliverable currency based product to our OTC Clear product suite”.

OTC Clear provides a Payment versus Payment – or PvP – settlement solution through the Real-Time Gross Settlement system operated by the Hong Kong Monetary Authority, which eliminates so-called “Herstatt” or settlement risk. OTC Clear has appointed Industrial and Commercial Bank of China (Asia) Limited and Standard Chartered Bank (Hong Kong) Limited as the settlement banks to conduct PvP settlement.

OTC Clear currently has 12 clearing members, including six Hong Kong subsidiaries or branches of Chinese banks. Several other financial institutions are currently working on clearing membership admission arrangements.

Several transactions were submitted to OTC Clear once the service was launched this morning. Two of them, Bank of China (Hong Kong) Limited versus The Hongkong and Shanghai Banking Corporation Limited and Industrial and Commercial Bank of China (Asia) Limited versus Standard Chartered Bank, showed the new clearing service helps to facilitate trading between international and Chinese banks. The other transaction, a trade between Hang Seng Bank Limited and The Hongkong and Shanghai Banking Corporation Limited, showed that there is local bank demand for CCS clearing.

All trades are submitted to OTC Clear via MarkitSERV, a trade affirmation platform operated by IHS Markit, a company that provides trade processing services for the OTC derivatives and foreign currency markets. Some of the trades are being conducted via Tradition (Asia) Ltd, a leading broker in Hong Kong’s inter-dealer broker market.

The total aggregate notional value of US$120 million was cleared as of 4 pm on the first day.

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