South Korea mulls OTC derivatives clearing house

August 26, 2009

A businessman walks past a banner promoting interest of CMA (Cash Management Account) of a local securities company in Seoul July 14, 2009. South Korea is moving to screen over-the-counter (OTC) derivative products ahead of their market debut, as regulators worldwide look to curb free-wheeling derivatives trading and protect investors.   REUTERS/Lee Jae-Won (SOUTH KOREA BUSINESS)   SEOUL, Aug 26 (Reuters) – South Korea may introduce an over-the-counter derivatives clearing house, a top regulator said on Wednesday, the latest in a series of moves to curb free-wheeling derivatives trading.
   Governments worldwide have been tightening OTC derivatives regulations in the wake of the global credit crisis, with the United States proposing laws to increase central clearing in a bid to bring transparency and liquidity to the market for credit default swaps. [ID:nN30375406]
   South Korea’s OTC derivatives markets are still in the early stage of growth, although on-the-market options for the KOSPI 200 index <.KS200> ranked the world’s largest by transaction volume.
   OTC derivatives markets had been viewed as the main beneficiary of a deregulated financial industry in Asia’s fourth-largest economy, prompting a rush by foreign banks to apply for the licenses.
   “From a long-term perspective, we have a plan to improve the infrastructure system of over-the-counter derivatives markets,” Financial Supervisory Service Governor Kim Jong-chang said in a speech prepared for a derivatives conference.
   “With a clearing house, we can reduce risks arising from counter party’s settlement failures and mitigate operational risks by setting up a transaction registration place.”
   Clearing houses mutualise risk, set margin requirements and make public the terms of trade.
   The outstanding nominal value of South Korean banks’ OTC derivatives products reached 4.8 times gross domestic product at end-2008, compared with 12.2 times for U.S. banks and 6.6 times for Japanese banks, Kim said.
   For credit derivatives products, the outstanding value was $5 billion at South Korean banks at end-2008, versus $20 trillion for the United States and $360 billion for Japan. (Reporting by Kim Yeon-hee; Editing by Ian Geoghegan) ((yeonhee.kim@thomsonreuters.com; +82 2 3704 5646; Reuters Messaging: yeonhee.kim.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to newsfeedback.asia@thomsonreuters.com))
Keywords: KOREA DERIVATIVES/ 
  
     Keywords: KOREA DERIVATIVES/ 
  
Wednesday, 26 August 2009 02:09:03RTRS [nSEO59491 ] {C}ENDS

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