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Foreign Exchange

ICE to launch OTC FX clearing service

The IntercontinentalExchange (ICE), which trades the DXY US dollar index, will start offering clearing services for seven non-deliverable forwards (NDFs) for client and clearing member trades in the second quarter of this year, the company said in a statement.

Subject to regulatory approval, the ICE will clear NDF contracts in the Brazilian real, Korean won, Chinese yuan, Indian rupee, Indonesian rupiah, Chilean peso and Russian rouble. ICE said it also plans to clear additional FX products in accordance with regulatory developments and market demand for the service. The move follows the London Clearing House’s (LCH) approval from the Financial Services Authority on Monday to launch its new OTC FX clearing service, ForexClear.

The ICE said it had been in close coordination with leading FX market participants on both the sell-side and buy-side. This includes most of the biggest FX banks, prospective swaps execution facilities, FX trading platforms, as well as connectivity and matching technology vendors.

The Atlanta-based exchange has said its OTC FX clearing service is designed to meet US regulatory requirements, as defined in the Dodd-Frank Wall Street Reform Act, which mandates the clearing of certain OTC FX contracts.

The implementation date for the mandatory clearing of swaps is anticipated by the Commodity Futures Trading Commission to be in the last quarter of 2012, a date also outlined by the pledges of the G20 group of industrial nations.

Market participants are nevertheless sceptical that large-scale clearing of NDF trades will take place before the end of the year, with some seeing progress before the middle of 2013 as unlikely.

There has been growing concern within the industry that implementation difficulties, specific to foreign exchange and coming from a lack of harmonization of regulatory proposals across continents, could stall the widespread clearing of FX until greater clarity is reached.

In Asia, the Singapore Exchange (SGX) began clearing Asian NDFs in October, with Deutsche Bank, DBS Bank and OCBC Bank the first to clear these contracts on the exchange. SGX has not reported volume data on the use of its NDF clearing service.

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