The Financial Supervisory Commission (FSC) has signed a memorandum of understanding (MOU) with the European Securities and Markets Authority (ESMA) to recognize the Taiwan Futures Exchange (TAIFEX) as a qualified central counterparty, paving the way for Taiwan to attract more investment, the commission said yesterday.
If the TAIFEX is recognized by more foreign regulators as a qualified central counterparty, local and foreign financial institutions could use lower risk weightings to calculate their accrued capital, Securities and Futures Bureau Deputy Director-General Chang Tzu-ming (張子敏) told a news conference in New Taipei City.
Foreign financial institutions would be encouraged to settle their deals in Taiwan and the nation’s visibility would be raised, Chang said.
“For example, interest rate swap is one of the most popular products supervised by the TAIFEX. The amount of interest rate swap transactions made by local financial institutions and their foreign counterparts totaled about NT$5.1 trillion [US$159 billion] in the first nine months of this year, but most of them were settled overseas,” Chang said.
“If the TAIFEX is recognized as a qualified central counterparty, it is likely that more foreign companies would choose to settle their deals in Taiwan,” Chang said.
Exchanges that are not given the recognition are subject to much more severe requirements of risk capital accrual than those that have been recognized, Chang said.
Only 2 percent of risk weighting is required for financial institutions when calculating the accrued capital for the counterparty credit risk after conducting TAIFEX clearing, Chang said, citing FSC regulations.
However, risk weightings for non-recognized exchanges range from 20 to 100 percent, Chang said.
The memorandum’s signing came after the European Commission on Sept. 28 said that it deemed Taiwan’s legal and supervisory framework for central counterparties equivalent to the European Markets Infrastructure Regulation, the FSC said.
The execution of the memorandum would satisfy a condition on which ESMA recognizes the TAIFEX as a qualified central counterparty, the FSC said.
The TAIFEX has also been seeking accreditation as a qualified central counterparty in the US, the UK and Canada to attract foreign capital and enhance the domestic market’s international competitiveness, and plans to sign memorandums of understanding with Canada and the US in the near term, Chang said.
The Australian regulator already recognized the TAIFEX as a qualified central counterparty, while the US Commodity Futures Trading Commission has issued no-action letter to the TAIFEX, tentatively recognizing it as a qualified central counterparty, the FSC said.
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