OTC Clear is a subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX) while LCH SwapClear is LCH’s interest rate swap (IRS) clearing service.

OTC Clear to give banks access to Chinese banks as counterparties

OTC Clear is also the first and only global clearing house to offer a clearing service for USD/HKD and USD/CNH cross currency swaps. It has also seen volumes in these currency pairs pick up significantly in FY2022. In the 1HFY2023 ended June, the bank’s cross currency swap volumes in HKD and CNH rose by over 50% on a y-o-y basis due to demand from its trading activities and customers. The increase also registered strong interest from its customers from Singapore and Hong Kong in particular.

According to the bank, the direct clearing membership with OTC Clear is in line with its corporate strategy to focus on the Asean and Greater China regions.

The bank’s OTC Clear membership will give it access to clearing services for over-the-counter (OTC) derivatives in cross currency swaps and interest rate swaps (IRS) for HKD and CNH. Central clearing for these derivatives will lower costs and mitigate counterparty risks, says OCBC.

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The bank will also stand to benefit from OTC Clear’s status as the only central clearing party licensed by the Monetary Authority of Singapore (MAS) that can accept banks incorporated in mainland China, as well as Chinese banks in Hong Kong SAR as direct clearing members. OCBC’s membership with the clearing house means it will be able to access more Chinese banks as counterparties.

“We are pleased to become a direct clearing member of OTC Clear. In addition to cost savings and mitigating our counterparty risk, membership with OTC Clear provides OCBC access to the China onshore interest rate swap market through Swap Connect. With deeper liquidity and less volatility in the onshore market, we are able to help our customers manage their risks more effectively,” says Kenneth Lai, OCBC’s head of global markets.

“We warmly welcome OCBC as the newest member of OTC Clear. This is another sign of the vibrancy of the regional derivatives market and follows the much anticipated launch of Swap Connect earlier this year, which continues to meet the growing appetite from global and regional banks and investors for RMB derivatives risk management and trading,” says Glenda So, HKEX group head of emerging business and FIC. FIC stands for fixed income and currencies.

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“We are extremely encouraged to see key industry participants, such as OCBC, recognise the unique clearing opportunities that OTC Clear offers through its comprehensive RMB-focused OTC derivatives capabilities, including Swap Connect, cross currency and interest rate swaps, non-deliverable interest rate swaps and deliverable FX, and we look forward to welcoming more participants in the future,” she adds.

Joining LCH SwapClear is ‘natural step’ for OCBC

Joining LCH SwapClear is a “natural step” for OCBC as the bank had seen a “steady growth in transaction volumes and outstanding position size with LCH over the years,” says Lai.

“The benefits of better risk management, cost efficiency and deeper liquidity derived from being a direct clearing member are valuable. It will enable us to support our customers’ growth ambitions in Asean and Greater China,” he adds.

LCH SwapClear is said to offer the deepest liquidity and market access to 95% of the cleared IRS market, says the bank in its Sept 21 statement.

With the membership, all of OCBC’s subsidiaries – including OCBC Malaysia, OCBC Hong Kong and OCBC NISP in Indonesia – can tap into LCH SwapClear’s deep liquidity and interest rate products in 27 currencies including the Singdollar.

The move will thus help the bank support demand for interest rate hedging instruments from its corporate customers.

To stay ahead of Singapore and the region’s corporate and economic trends, <a class='gtm_see_also_3_inread' style='text-decoration: underline;' href='/section/latest?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>click here for Latest Section</a>

In the first eight months of 2023, the number of OCBC’s over-the-counter (OTC) IRS transactions cleared by LCHC SwapClear has already exceeded that of 2022’s by 10%.

Through this membership, OCBC will be able to scale up its transaction volumes further while achieving cost efficiency and capital optimisation, says the bank.

“We are pleased to welcome OCBC as a direct clearing member in Singapore as it looks to benefit from greater risk management and capital efficiencies. We look forward to partnering with OCBC in future product designs, together with other banks in Singapore, as we continue to grow our global offering and expand our presence across the Asia Pacific (APAC) region,” says Isabelle Girolami, CEO, LCH Ltd.

As at 1.25pm, shares in OCBC are trading 20 cents lower or 1.58% down at $12.49.

OCBC becomes direct clearing member of HKEX’S OTC Clear AND LCH SwapClear

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