HKEX’s OTC Clear Introduces Client Clearing Services

Source: Regulation Asia Editors, Regulation Asia 2020-06-16

Market participants who are not themselves clearing members of OTC Clear can gain access to the benefits of central clearing through existing clearing members.

HKEX (Hong Kong Exchanges and Clearing) has commenced its client clearing services, allowing clearing members to pass on the capital savings and netting benefits of central clearing to their clients.

The service is provided by HKEX’s subsidiary OTC Clear, which provides clearing and settlement services for OTC derivative transactions.

Client clearing services enable market participants, who may choose not to become direct clearing members of OTC Clear, to gain access to central clearing by establishing a ‘client clearing’ relationship with an existing clearing member.

The benefits of central clearing include enhanced credit and capital efficiency, allowing clients to realise cross-product margining across different asset classes between portfolios such as interest rates swaps and cross currency swaps, and achieve portfolio margin efficiency.

Under the central clearing mechanism, clients can make use of the qualified central counterparty to alleviate interbank counterparty credit limitations, especially with small and medium-sized institutions, which in turn enhances market liquidity.

On Monday (15 June), OTC Clear cleared its first trade for client clearing services, where HSBC was the clearing broker for Chong Hing Bank.

“Through the mitigation of counterparty risk, this solution serves as an essential bridge to facilitate our clients in navigating volatile market conditions,” said Justin Chan, Head of Greater China, Asia Pacific, Global Markets at HSBC, speaking on the bank’s introduction of client clearing services through HKEX OTC Clear.

“The expansion to client clearing will leverage on our unique clearing solutions in the offshore renminbi and other currencies,” said HKEX Co-President and Chief Operating Officer Calvin Tai. “Going forward, we will further develop our client base and expand OTC product offerings as a global market leader in the Asian time-zone.”

OTC Clear is recognised by authorities in the US, European Union, Japan and Australia to offer clearing services to their financial institutions.

Earlier this year, OTC Clear received approval to offer client clearing services to banks in Japan.

HKEX’s OTC Clear Introduces Client Clearing Services

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