Hong Kong Launches OTC Clearing

Terry Flanagan

MarkitSERV, a global electronic trade processing service for over-the-counter derivatives, is connecting customers to OTC Clearing Hong Kong Ltd (OTC Clear), the OTC derivatives clearing service established by Hong Kong Exchanges and Clearing Limited (HKEx). OTC Clear started clearing interest rates and FX derivatives on November 25, 2013.

MarkitSERV is the first global trade processing middleware service to connect to OTC Clear. MarkitSERV will also connect customers to the Hong Kong Monetary Authority’s new trade repository and will provide workflows to facilitate compliance with trade reporting requirements in Hong Kong from early December onwards.

“We worked very closely with HKEx and our customers to deliver a solution that provides an efficient way to manage the trade flows for central clearing,” said Henry Hunter, managing director and global head of derivatives processing at Markit. “The addition of HKEx to our global OTC clearing gateway serves customers in this very important region and reinforces our commitment to delivering the most flexible, efficient and future-proof clearing solution for the OTC market.”

OTC Clear announced that its “soft launch” of business was completed smoothly.

“The soft launch of OTC Clear was a success and we look forward to the gradual development of its business in size and product range,” said HKEx chief executive Charles Li. “OTC Clear is a key part of our strategy to develop our fixed income and currency business, leveraging on the accelerating internationalization of Renminbi (RMB) and Hong Kong’s position as the premier offshore RMB center.”

OTC Clear’s clearing members currently comprise Bank of China (Hong Kong), HSBC, and Industrial and Commercial Bank of China (Asia), three of its 12 founding shareholders. It is expected that the other founding shareholders or their affiliates will join as clearing members in due course.

It plans to introduce client clearing in 2014 after the new legislation on the Securities and Futures (Amendment) Bill is in place and relevant amendments to OTC Clear rules are approved by the Securities and Futures Commission, and will expand its clearing services to cover other OTC derivatives when appropriate.

OTC Clear’s first cleared trade was a non-deliverable RMB 7-day repo swap between Bank of China (Hong Kong) and HSBC, the first of its kind processed by a clearing house globally. Other cleared transactions today included a USD / RMB non-deliverable foreign exchange forward deal and a HKD interest rate swap. The total notional value (HKD equivalent) of the transactions processed today by OTC Clear was about $304 million.

MarkitSERV provides market participants and execution venues with a single point of access to 15 clearinghouses worldwide and provides trade confirmation, clearing, allocation of block trades and regulatory reporting in several jurisdictions.

In Asia, MarkitSERV connects its 2,600+ customers to the derivatives clearing services run by the Australian Securities Exchange (ASX), Japan Securities Clearing Corporation (JSCC) and the Singapore Exchange (SGX).

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