Guidelines for Non-Cleared OTC Derivatives Transactions Extended for 1 Year

135 Locations Subject to Variation Margin Exchange
163 Locations for Initial Margin

Financial Supervisory Service, Yeouido, Seoul. Photo by Huh Younghan younghan@

On the 29th, the Financial Supervisory Service (FSS) announced that it will extend the margin exchange system guideline, which requires counterparties to exchange margin (collateral) in advance for over-the-counter (OTC) derivatives transactions not cleared through a central clearinghouse, for one year until August next year.

On the same day, the FSS announced the extension policy of the "Guideline on Margin Exchange System for Non-Cleared OTC Derivatives Transactions."

The central clearinghouse is a system that extends the central clearing and settlement services provided for products traded on exchange markets to OTC derivatives as well.

The margin exchange applies to all OTC derivatives not cleared through the central clearinghouse, excluding physically settled foreign exchange (FX) forwards and swaps, cross-currency swaps (CRS), and physically settled commodity forward transactions. Margin is divided into variation margin, which manages daily exposure (risk exposure), and initial margin, which manages the counterparty's future default risk at the time of the transaction.

Institutions subject to variation margin exchange are financial companies with an average nominal balance of non-cleared OTC derivatives transactions of 3 trillion KRW or more from March to May each year, totaling 135 companies. Among them, 111 companies belong to financial groups.

Institutions subject to initial margin exchange are financial companies with an average nominal balance of non-cleared OTC derivatives transactions of 10 trillion KRW or more from March to May each year, totaling 163 companies. Among them, 129 belong to financial groups.

General companies, central banks, public institutions, international organizations such as the Bank for International Settlements (BIS) are excluded from the margin exchange application. Asset management companies are subject to the guideline, but collective investment schemes, trust accounts such as banks, and specialized credit card companies are not subject to the guideline.

An FSS official stated, "We will continuously monitor the progress of the existing system implementation and the implementation process of newly applicable financial companies."

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