Wed, Jan 31, 2018 - Page 12 News List

TAIFEX to propose changes for derivatives clearing

By Ted Chen  /  Staff reporter

The Taiwan Futures Exchange (TAIFEX) yesterday outlined its goals to expand its product offerings and work toward legal amendments that would help it establish a derivatives clearing business to help reduce costs for local financial institutions.

The exchange is planning to launch crude oil futures to expand its offerings in the commodities market, TAIFEX chairman Liu Len-yu (劉連煜) told a news conference in Taipei.

“We are confident that the crude oil futures will get a warm reception on the local market, given the significant turnover from the large amount of investors who been investing in the commodity through re-cosigned trading,” Liu said.

The exchange only offers gold futures and options denominated in US dollar or New Taiwan dollar.

Liu also said that the exchange has inked an agreement with S&P Dow Jones Indices to jointly create a futures index tracking the movements of the Chinese yuan, which is slated to be launched before the end of the first quarter to satisfy demand for products tracking the Chinese currency.

Most notably, the exchange has completed draft amendments to the Futures Trading Act (期貨交易法) that would make it possible to establish a new business unit serving as a central clearing house for over-the-counter (OTC) derivative instruments.

Since the global financial crisis of 2008, many developed economies have begun moving toward centralized clearing to limit risk contagion of OTC derivatives, whose valuation could see wild swings in bouts volatility, TAIFEX said, adding that a step in this direction would bridge the gap between the local and international markets.

In addition, local lenders would benefit from centralized clearing as they are subject to lower capital and margin requirements under Basel III, a global, voluntary regulatory framework on bank capital adequacy, TAIFEX added.

Centralized clearing would also give regulators a clearer picture of the industry’s exposure to derivatives, as well as improve pricing transparency for investors, it said.

Initially, the exchange is planning to require more popular derivatives, such as interest-rate swaps and non-deliverable forwards, to be tracked by the centralized clearing house, it said.

Cross-currency swaps are expected to follow in the second phase of deployment of the centralized clearing house, it added.

Following the implementation of overnight trading and new product launches, turnover on the TAIFEX last year rose 9.05 percent to 265.7 million contracts, reaching a new record high, Liu said, adding that average turnover also rose to 1.08 million contracts.

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