KSD Launches Initial Margin Collateral Management Service for Non-Cleared OTC Derivatives Transactions

[Asia Economy Reporter Lee Seon-ae] The Korea Securities Depository (KSD) will launch an initial margin collateral management service following the implementation of the mandatory initial margin exchange system for non-cleared over-the-counter (OTC) derivatives transactions.

According to KSD on the 1st, initial margin is exchanged to cover potential losses arising from counterparty default or contract non-performance, and reuse of the collateral is prohibited. It is recommended to use a third-party custodian institution.

Starting this month, financial companies engaging in OTC derivatives transactions above a certain scale must exchange variation margin (operational since September 2017) and initial margin in accordance with the Financial Supervisory Service guidelines.

KSD, as a third-party custodian, provides OTC derivatives collateral management services including setting and releasing collateral rights on initial margin, rights management, daily settlement, and disposal procedures in case of default.

Additionally, when domestic financial institutions use foreign securities they hold as initial margin, KSD offers initial margin management services in connection with the foreign custodian 'Euroclear.'

KSD stated, "We plan to explore expanding third-party custodians such as Clearstream in consideration of future industry demand."

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