Responding to evolving global regulatory trends and aiming to further strengthen the resilience of Taiwan’s financial markets, the Financial Supervisory Commission (FSC) announced on March 18, 2025, a clearing mandate for New Taiwan Dollar (TWD) interest rate swap (IRS) transactions, effective from July 1, 2025. Starting from that date, all newly executed TWD IRS transactions between eligible financial institutions must be centrally cleared through the Taiwan Futures Exchange (TAIFEX).
This mandatory clearing policy, enacted pursuant to Article 3 of the Futures Trading Act and the FSC’s March 18 announcement, applies to standard fixed-for-floating TWD IRS contracts. Eligible counterparties include banks (with Taiwan branches of foreign banks as well), securities firms, bills finance companies, insurance companies, trust enterprises, leverage transaction merchants, and other designated financial institutions authorized to engage in derivatives business.
The adoption of this clearing mandate significantly reduces counterparty risk, mitigates the contagion effects of defaults, and reinforces overall financial stability. With TAIFEX serving as the central counterparty, market participants are no longer exposed to direct counterparty credit risk and can free up credit lines previously allocated to bilateral exposures. More importantly, TAIFEX has secured regulatory recognition to provide clearing services not only in Taiwan but also in the US, EU, and Japan. Moreover, Taiwan’s regulatory authority has adopted a central clearing framework aligned with international regulatory standards, such as those set by the Basel Committee on Banking Supervision and the Insurance Capital Standards. As a result, market participants benefit from substantially lower risk weights and capital charges compared to bilateral trading, thereby enhancing capital efficiency.
The introduction of mandatory central clearing marks a significant step forward in the regulatory development and risk governance of Taiwan’s over-the-counter (OTC) derivatives market. Through standardized clearing mechanisms and effective operational processes, the regime enhances data transparency, consolidates risk management, and reduces systemic risk. It also underscores Taiwan’s commitment to aligning its regulatory infrastructure with global standards. In addition to enhancing market transparency and resilience, central clearing strengthens Taiwan’s appeal to foreign participants and lays a solid foundation for cross-border financial cooperation and further development of market infrastructure. This landmark initiative plays a pivotal role in bolstering the long-term stability and competitiveness of the financial system in Taiwan.
