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News: Shanghai Clearing House Launch Clearing for IRS in RMB

27 January 2014 | Bill Hodgson

Clearing for RMB IRS has been announced in China, the euroclear story is here and the official announcement is here (via Google Translate), also reported by Risk (subs).

Highlights are:

  • Clearing began on Jan 2nd
  • 15 Clearing Members
  • 59 Trades on the first day and notional of 5.025bn Yuan = $831m at todays fx rate
  • SHIBOR o/n, 3 day, 7 day and three other indices eligible
  •  5 days to 5 year remaining maturity

Translation here

Approved by the People's Bank of China, the inter-bank market Clearing Corporation (hereinafter referred to as the Shanghai Clearing House) with effect from January 2, 2014, the trial focused on conduct RMB interest rate swap clearing business. The first day, the Shanghai Clearing House handled 15 financial institutions submitted centralized clearing of RMB interest rate swap transactions 59 pen, notional principal 5.025 billion yuan. 
 
The first day focused on the liquidation of the pen RMB interest rate swap transaction, submitted to Commercial Bank of China and Shanghai Pudong Development Bank FR007 is the reference rate, the interest rate swap notional principal of 50 million yuan trading. It is also China's first pen into centralized clearing of OTC derivatives trading, signs of OTC financial derivatives central clearing mechanism starts running. 
 
59 pen centralized clearing business, 41 pen as stock trading, notional principal 3.825 billion yuan; 18 pen for the new day trading reached notional principal 1.2 billion. The first to reach the pen and choose the new centralized clearing of transactions to Shibor-3M reference interest rate, the nominal interest rate to reach 5,000 million principal amount of the Industrial and Commercial Bank of China and Bank of Nanjing swaps. Active participation of centralized clearing business day before the three institutions are: Bank of 26 pens, notional principal 2.675 billion yuan; ICBC 16 pen, notional principal 1.3 billion yuan; Industrial Bank 15 pen, notional principal 1.25 billion yuan. 
 
Day FR007, Shibor-O / N, Shibor-3M and other three reference rates are submitted centrally cleared transactions, in which the reference interest rate to FR007 transactions 49 pen 4.325 billion yuan, accounting for 86.07% of the total amount of centralized clearing of; to Shibor -3M is a reference rate of 6 pen 300 million yuan, accounting for 5.97%; to Shibor-O / N 4 as the reference rate for the transaction pen 400 million yuan, accounting for 7.96% of the total amount of centralized clearing of. 
 
The same day, Shanghai Clearing interest rate swap clearing system running smoothly, Shanghai central counterparty clearing contract substitution, exposure calculation, calculation of mark to market gains and losses, interest calculation successfully completed. 
 
 
Dear Deputy Governor Liu Shiyu, deputy mayor Mr. Tu, leaders, distinguished guests, ladies and gentlemen: 
 
Hello everybody morning! 
 
Thank you for participating in focus RMB interest rate swap clearing business conference. Liu thanked the governor, the mayor Tu passionate speech and certainly Shanghai Clearing work! Thank you for your concern and support for the Shanghai Clearing House!  RMB interest rate swap rates centralized clearing is the first developed by Shanghai Clearing derivatives central counterparty clearing business focus. Governors and mayors as Mrs Tu said, while centralized clearing RMB interest rate swap will effectively reduce the liquidation costs, improve market efficiency, mitigate systemic risk, interest rate reform services and support to build Shanghai into a global product pricing and RMB clearing center.
 
Shanghai Clearing focus on interest rate swap clearing business very seriously, business R & D in 2011, spent more than two years of preparation business and technical systems, approved by the People's Bank, today officially launched. RMB interest rate swap clearing business to focus without changing the existing trading patterns, the focus is Shanghai central counterparty clearing, centralized clearing and risk management, there are four characteristics. 
 
First, more than 90% of the interest rate swap transactions can be incorporated into centralized clearing, including contract duration in 5 days (inclusive) to 5 years (inclusive), and floating reference rate for the end SHIBOR overnight, SHIBOR three and seven-day repurchase fixing the interest rate and other three varieties. Meanwhile, the stock of contracts that meet the above criteria can also be incorporated into centralized clearing. 
 
Second, the existing interest rate swaps participating institutions are eligible to apply to participate in centralized clearing business. Currently, the agency's former business volume in the top 50, there are 42 organizations submitted a business application, the 21 agencies for completion of all formalities, other agencies will participate in batches centralized clearing of interest rate swaps. 
 
The third is to create a central clearing house to Shanghai centralized counterparty clearing mechanism, unified standard market risk exposure and interest calculations, an effective solution to the credit limit on the amount of bilateral clearing mode, to better guard against systemic risk in financial markets maintain financial market stability. 
 
Fourth is to generate daily interest rate swap market yield curve generally recognized, the effective realization of marking to market, accurate calculation of the contract value, market institutions can participate in this curve, the transaction pricing and product valuation services the interest rate market. 
 
After the introduction of interest rate swap clearing business focus, Shanghai Clearing House will do a solid job of business operations management, strengthen risk control, improve market services, and effectively protect business and system safe and stable operation. Meanwhile, the Shanghai Clearing House will accelerate the development of clearing agent, and the interest rate swap contract period of expansion, and strive business coverage to all market participants and all transaction types. On this basis, further establish and improve the foreign currency, multi-product, cross-market central counterparty clearing services centralized system to better support market discipline management, improve market transparency and guard against systemic risk, to service innovation and reform and development of financial markets, support the construction of Shanghai international financial center. 
 
Thank you!