The QCCP recognition for Taiwan Futures Exchange’s (TAIFEX) OTC derivatives clearing services was granted by the FSC on June 9, 2022.
For an OTC derivatives contract which was executed between two market participants, once it is submitted to a CCP for clearing, it will be replaced by two bilateral contracts between each of the original counterparties and the CCP. If the CCP is a QCCP like TAIFEX, then the counterparties’ trade exposures to the QCCP or TAIFEX can be subject to a risk weight of 2%, according to the “capital requirements for bank exposures to central counterparties” announced by the Banking Bureau of the FSC. Therefore, clearing through TAIFEX allows market participants to lower their capital requirements, improve their capital efficiency and advance their international competitiveness.
In addition to capital efficiency, clearing through TAIFEX can also enhance financial institutions’ operational efficiency and reduce their burden of managing credit risks and collateral requirements with each of their counterparties. TAIFEX plans to launch its OTC derivatives clearing business to provide clearing services for clearing members’ proprietary TWD-denominated interest rate swaps in July this year. The new clearing services can help clearing members trim the complexity of credit risk management by removing the complicated web of bilateral exposures into a single net exposure to TAIFEX.
TAIFEX was recognized as a QCCP for its exchange-traded derivatives clearing services by the FSC on November 25, 2020. The FSC’s June 9, 2022 recognition has a significant meaning for TAIFEX’s upcoming OTC derivatives clearing business, provides more incentives for financial instructions to participate in the market, and paves the way for the vigorous development of the central clearing of OTC derivatives in Taiwan.
