August 16, 2016

OTC Clear (OTC Clearing Hong Kong ), a subsidiary of HKEX (Hong Kong Exchanges and Clearing) that provides clearing and settlement services for OTC over-the-counter derivative transactions, announced the launch of its clearing service for CCS (cross currency swaps). 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.

"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," said HKEX chief executive Charles Li. "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) and Standard Chartered Bank (Hong Kong) 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) versus The Hongkong and Shanghai Banking Corporation and Industrial and Commercial Bank of China (Asia) 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 and The Hongkong and Shanghai Banking Corporation, 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 USD120 million was cleared as of 4pm on the first day (Monday 16 August).

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