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China to require central clearing of interest rate swaps 

January 6, 2014
Business Times

China's central bank will require interest rate swaps to be conducted via a central clearing house, in a move to reduce counterparty risk in the over-the-counter (OTC) derivatives market, the central bank said.

Shanghai Clearing House, one of two state-backed clearing houses for China's interbank bond market, will handle clearing for IRS trades.

IRS have been traded in China since 2005 but were previously settled bilaterally, with no central clearing.

The problem of systemic risk to the financial system from OTC derivatives emerged during the 2008 financial crisis, when governments stepped in to bail out firms like American International Group Inc. that were unable to pay money owed to counterparties on loss-making derivatives trades.

Read more: Business Times

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