Published On: Sun, Oct 7th, 2012

SGX Proposes Rule Changes for Clearing of Customers’ OTC Financial Derivatives Transactions

Singapore Exchange Derivatives Clearing Limited (“SGX-DC”) is proposing changes to its Clearing Rules to enable its Clearing Members to clear over-the-counter financial derivatives (“OTCF”) transactions for their customers. Clearing Members have, until now, only been permitted to clear proprietary OTCF transactions.

The proposed changes also include an Enhanced Customer Collateral Protection model. This will provide an option for all customers clearing OTC contracts through SGX-DC to protect against the use of their collateral in the event of default of other customers. SGX-DC already offers customers protection that their collateral will not be used in their Clearing Member’s default on proprietary transactions as well as SGX-DC’s default.

Globally, regulators have been facilitating the clearing of OTC derivatives through exchanges. Centralised clearing offers benefits to participants, such as the reduction of counterparty credit risk and standardisation of contractual terms. Through these proposals, SGX-DC seeks to enable more customers to have their OTCF transactions centrally cleared.

In November 2010, SGX-DC began clearing proprietary OTCF transactions of Clearing Members. Nearly S$300 billion in notional value of interest rate swaps have been cleared since then. SGX-DC intends to build on this capability by implementing clearing of customer OTCF transactions by the first half of 2013, subject to regulatory approval.

In line with this intention, SGX-DC proposes the following key changes to its Clearing Rules:
* a revision of criteria for clearing membership to allow for the clearing of customer OTCF transactions; and
* the introduction of the Enhanced Customer Collateral Protection model.

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