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On December 16, 2022, the Taiwan Futures Exchange (TAIFEX) has been recognized as a Tier 1 third-country central counterparty (TC-CCP) by the European Securities and Markets Authority (ESMA), and the recognition decision will be applied from December 31, 2022.
The recognition shows that the central clearing mechanism in Taiwan conforms to international standards and trends, realizing the vision of the Financial Supervisory Commission’s capital market blueprint in building a fair, efficient, innovative, open, diversified, and internationalized capital market to further attract foreign financial institutions to participate in Taiwan’s capital market and enhance Taiwan's international status and visibility. In particular, Taiwan’s financial supervisory framework has been deemed equivalent to the European Union’s, putting Taiwan on par with other countries, which is conducive to strengthening cross-border supervision cooperation and information exchange, helping financial institutions implement risk management and regulatory compliance, and stabilizing the whole financial industry.
European financial institutions are major participants in Taiwan’s derivatives market, accounting for nearly 10% of the futures trading volume and
40% of the TWD IRS trading volume. After TAIFEX’s recognition by the ESMA comes into effect, European financial institutions can apply the minimum risk weight of 2% for their trade exposures to the TAIFEX when participating in Taiwan’s exchange-traded derivatives market and over-thecounter(OTC) derivatives market, effectively reducing capital requirement cost and enhancing capital utilization and institution’s competitiveness. The approval from the ESMA will also help European financial institutions meet compliance requirements, and, therefore, greatly increase their willingness to engage in
Taiwan’s central clearing business. It is expected to further promote the derivatives market in Taiwan.
The TAIFEX has been dedicated to researching and analyzing the central clearing mechanism of international organizations and major foreign clearing institutions to formulate a clearing mechanism that complies with international norms, follows Principles for Financial Market Infrastructures (PFMI), and discloses quantitative information, strengthening the risk management framework, increasing market transparency, and creating an environment that is beneficial to the various participant. TAIFEX’s continuous efforts have reached substantial achievements, recognized by foreign supervisory organizations successively. On September 15, 2022, the TAIFEX received No-Action Relief from the Commodity Futures Trading Commission (CFTC) and the relief allows the U.S. financial institutions to use the central clearing service offered by the TAIFEX for their proprietary trades. On December 16, 2022, the TAIFEX made another breakthrough in receiving TC-CCP recognition by the ESMA, which will expand and deepen the participation of European financial institutions in
Taiwan’s derivatives market. In addition, the TAIFEX has also applied for qualification accreditation as a qualifying central counterparty from the U.K., Canada, Japan, and other countries. In order to continue expanding the OTC derivatives clearing business, the TAIFEX plans to broaden its service in July 2023, providing client clearing service and adding TWD Non-Deliverable Forward (NDF) in offering products. It is expected that more foreign and domestic institutions will participate in Taiwan’s derivatives market, and the TAIFEX will continue to enhance its international competitiveness and reputation.
