By Kang Yoon-seung
SEOUL, March 13 (Yonhap) -- South Korea's bourse operator said Wednesday it has signed a deal with the Singaporean counterpart to cooperate in the development of an over-the-counter (OTC) derivatives clearing system.
The Korea Exchange (KRX) signed a memorandum of understanding with the Singapore Exchange (SGX) on Feb. 27 to develop the joint clearing system, which is expected to benefit two countries' central counterparties (CCPs) by cutting costs and generating demand.
CCPs refer to financial institutions that shoulder market participants' risks by taking responsibilities in derivatives settlements, which is anticipated to add to the market stability when extended to OTC transactions.
Under the deal, South Korean financial companies will be able to use the KRX as their CCP for clearing of OTC derivatives with Singaporean counterparts, making cross-boarder trades simpler than the current system.
The current system only allows local firms to use the same CCP with the foreign counterparts, while overseas firms are less inclined to use the KRX as their CCP. The deal is the first of its kind in the world.
"Clearing through a central counterparty is becoming a necessity for OTC market participants," said Muthukrishnan Ramaswami, president of the SGX.
"This collaboration will explore possible synergies to better meet the needs of market participants, particularly in the Singapore and Korea markets," the KRX added.
Meanwhile, the KRX plans to launch the country's first CCP for OTC trading in 2013 following the revised Financial Investment Services and Capital Markets Act which was passed at the National Assembly on March 4.
South Korea's bourse operator will start feasibility study and working-level reviews with the SGX for the system, while its launch date is still undecided.
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