The long term focus of the recently announced over-the-counter derivative clearinghouse coming to the Hong Kong Exchange will be likely renminbi-denominated derivatives. That’s despite the fact the first products to be cleared will be interest rate swaps and non-deliverable forwards.
“The big prize here is not necessarily NDF or IRS, it’s OTC RMB products,” said Sundeep Bhandari, chair of the Treasury Markets Association over-the-counter derivatives clearing feasibility taskforce and regional head of global markets for Northeast Asia at Standard Chartered in Hong Kong. “That’s what we’re building for.” Last week, the HKEx announced it would start an OTC derivative clearinghouse by the end of 2012, in tandem with an announcement from the Hong Kong Monetary Authority that it would be creating an OTC derivative trade repository.
According to a presentation by Charles Li, chief executive of the HKEx, the IRS and NDF clearing, will be followed by additional fx derivatives and equity derivatives. The targeted participants are international banks, mainland banks in Hong Kong and local banks.
The Singapore Exchange recently launched the first over-the-counter derivatives clearinghouse in Asia, clearing vanilla interest rate swaps denominated in U.S. and Singapore dollars. When asked about possible competition between the two clearinghouses, Bhandari said the RMB market in Hong Kong would allow the new clearinghouse to operate in a separate market from its Singapore counterpart. “I think both will compete in different tangents, he said. “I think the strategic value addition here is RMB.”
Between now and implementation, the HKEx will also be working with its dedicated HKD180 million (USD23.14 million) in internal seed money to get the project running. “HKEx is considering different operating models and shareholder structures for the clearing house,” said an HKEx spokesman. “HKEx will consider partners if they can help attract participation of international and Mainland players in HKEx’s market, bring OTC clearing and risk management skills and expertise, and license their clearing systems and/or risk management systems to HKEx.”