US approves SGX as Asia’s first derivatives clearing house

The US derivatives regulator Commodity Futures Trading Organization (CFTO) has authorised the Singapore Stock Exchange (SGX) as a derivatives clearing organization, the first Asian clearing house to obtain such a status.

New and existing US customers will be able to clear their derivatives contracts efficiently through SGX's derivatives clearing house in compliance with the latest US laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the Commodity Exchange Act and CFTC's regulations, SGX said in a statement.

The new legislation, which came into force in 2010, brought sweeping changes to financial regulation in the US to clean up hundreds of trillions of OTC derivative markets following the 2008 global financial crisis.

Under the new law, such derivatives or swaps have to be processed through clearing houses, which stands between two trading parties, to help safeguard against the consequences of a big default.

Dodd-Frank requires any clearing house wanting to clear swaps for a US customer must be approved by the regulator, the CFTC.

"SGX is delighted to be recognised as Asia's first Derivatives Clearing Organization. This reaffirms our commitment to serve our US customers with the necessary regulatory authorisation. Muthukrishnan Ramaswami, President of SGX said.

''It also underscores our position as a leading exchange with the highest international standards and practices which clients can rely on for their business and risk management needs," Ramaswami further stated.

With the approval, SGX can offer to US persons for clearing products such as iron ore swaps, interest rate swaps and non-deliverable foreign exchange forwards.

SGX derivatives clearing as well as securities clearing house, the Central Depository (CDP) have also applied to the European securities and market authority (Esma) for recognition as third country central parties in order to provide clearing services to European Union customers, the statement said.

The agreement includes markets and trading platforms, clearing houses, trade repositories and intermediaries, dealers, and other market participants, the regulators said.

Separately, the CFTC and the Monetary Authority of Singapore (MAS) has agreed to co-operate on the supervision of financial institutions with activities in both the derivatives markets.

Earlier this month, MAS said that a ''new regime'' on the mandatory clearance of OTC derivatives was expected to commence in the second half of 2014.

SGX represents the premier access point for managing Asian capital and investment exposure, and is Asia's most international exchange with more than 40 per cent of companies listed on SGX originating outside of Singapore.

SGX offers its clients the world's biggest offshore market for Asian equity index futures, centred on Asia's three largest economies - China, India and Japan.

In addition to offering a fully integrated value chain from trading and clearing, to settlement and depository services, SGX is also Asia's pioneering central clearing house.

Korea's securities exchange operator Korea Exchange (KSX) is also hopeful of achieving recognition from Europe and the US by next year.