Exchange Implements Abbreviated System for Over-the-Counter Derivatives Trading

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[Asia Economy Reporter Kwon Jae-hee] The Korea Exchange announced on the 13th that it will implement a compression system for over-the-counter (OTC) derivatives transactions.

Compression is a system that reduces the scale of existing transactions by terminating contracts or changing contract amounts before the maturity date for multiple OTC derivatives transactions.

The Korea Exchange targets uncleared swap transactions in Korean won or US dollar interest rate swaps (IRS) and proceeds by having clearing members apply according to the compression schedule.

For offsettable transactions collectively extracted from the compression application transaction information submitted by multiple participating members, the size of the cleared swap transactions is reduced by contract termination before maturity or contract amount changes with the consent of all participants.

Initially, the system will be implemented over seven business days from the 20th to the 28th (compression dates) targeting Korean won IRS cleared swap transactions, and will proceed thereafter considering the accumulated size of uncleared cleared swap transactions.

Since revising the OTC derivatives clearing business regulations on June 9 last year to establish the foundation for introducing the compression service, the Exchange has been developing related systems, conducting four linkage tests with member firms, signing outsourcing contracts for the compression service, and revising implementation rules.

The Exchange stated, "Clearing members participating in the compression service can expect effects such as increased capital operation limits and reduced back-office operational risks through the reduction of accumulated uncleared clearing position sizes," and added, "We plan to decide and implement future compression schedules in advance considering the accumulated size of uncleared cleared swap transactions and the demand from clearing members."

This content was produced with the assistance of AI translation services.