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Foreign Exchange

Foreign banks unlikely to support SGX forwards clearing, says lawyer

Foreign banks are unlikely to participate in the Singapore Exchange’s (SGX) new clearing service for non-deliverable Asian foreign exchange (FX) forwards.

A Singapore-based counsel told Euromoney's IFLR that SGX’s decision to enable clearing of non-deliverable regional currencies, including Indonesian Rupiah and Korean won, from September had been deemed more trouble than it was worth by most foreign banks.

“Participation will cost us money to develop the internal technology to connect with the SGX that we simply don’twant to spend,” he said. Participation is not mandatory, so he believed many foreign banks would reach the same conclusion.

“Most foreign banks are happy with their uncleared non-deliverable forward (NDF) business,” he said. “Clearing it, while potentially reducing a bit of risk, also creates a lot of headache as well as transparency which we don’t necessarily want.”

“I think the average trader likes the fact the market is a little bit opaque,” he said. “Clearing on an exchange is going to mean transparency of pricing, enabling people to see what is trading on the exchange and that’s not good for investment banks.”

The SGX had decided to offer the service because they perceived that the market wanted this, he said. “I am not sure that their perception is correct.”

He predicted, however, the Singaporean banks would try to clear their limited NDF business as a mark of support for a SGX initiative.

SGX spokesperson Loh Wei Ling told IFLR the initiative was the next step in OTC clearing offerings by the exchange following the November 2010 start of clearing of Singapore dollar-denominated Interest Rate Swaps.

And was aligned with recent global regulations on mandatory clearing for non-deliverable FX forwards and FX options via a central counterparty.

Magnus Bocker’s SGX CEO said in a statement this week that demand for OTC traded financial derivatives clearing would grow rapidly. “This service will benefit our members as they grow their businesses here,” he said.

The 11 SGX Clearing Members eligible to clear FX Forwards are Barclays Bank, Citibank, Credit Suisse, DBS, Deutsche Bank, Hong Kong and Shanghai Banking Corporation, Oversea-Chinese Banking Corporation, Standard Chartered, Royal Bank of Scotland, UBS, and United Overseas Bank.

SGX expected the membership to grow in the months to come, the statement said.

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