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The SGX AsiaClear® Facility for OTC clearing complements the over-the-counter market trading in paper oil swaps and forward freight agreements by providing value-added post trade clearing services.
Participation
Interested OTC market participants need only just one clearing agreement with any SGX OTC Clearing Member in Singapore to trade, clear and net their OTC positions with all other counterparties with similar arrangements on the SGX AsiaClear® network. They can then conveniently ask their OTC Broker to register their trade for SGX clearing and netting. Participating OTC Brokers will be able to do so easily electronically using the SGX AsiaClear® Trade Registration System (TRS) at their offices.
Real-time Clearing From Asian Open to New York Close
Once trades are accepted and registered in the SGX AsiaClear® TRS, it is cleared real-time without needing to wait till European or US hours. SGX AsiaClear® trade registration and clearing is offer 20-hours daily from 8 am to 4 am the next day, Mondays to Fridays. This means that in addition to the Asian hours, clearing is available till New York close.
Trade Record and Statements
Once the trade is registered, the Participating OTC Broker involved would be able to inform the customer directly. These trades that are recorded and cleared will then be processed by the SGX Clearing System, which will provide the trade information electronically to the respective SGX OTC Clearing Members that will then produce the transaction statements and monthly statements for customers.
Position Netting and Margining
Buy and sell positions in the same contracts and within the same accounts will be automatically netted. For new outstanding positions, initial margins, which are good faith deposits to guarantee the settlement of the contract, are calculated and required.
Margin is a percentage of the contract value, determined objectively based on volatility study of recent historical price fluctuations of the contract. It can be in the form of cash in various currencies, letter of credit or other forms of collaterals that may be acceptable by SGX OTC Clearing Members. SGX OTC Clearing Members would pay interest on most currencies deposited as margins. For outstanding positions that are profitable, the gains will be credited into the customers account and interest is payable on the funds in the account. Should positions become unprofitable, the SGX OTC Clearing Member is required to call for more margins if the customers account balance falls below a prescribed threshold level, called the maintenance margin level.
Margins are therefore an effective form of deposit to settle price changes and any losses for ones position instead of accumulating, deferring settlement and owing a large amount until the contract expiry, which ultimately still has to be paid any way. However, any gains on customers positions will also be settled and paid upfront into the customers accounts, and there is also interest payable on the gains.
Most of all, margin processing and operations is seamless and transparent to market participants who do not have to do anything on their operations to calculate margins. All processing, calculation and accounting work are done by the SGX Clearing House and SGX OTC Clearing Members. Customers are contacted only when their accounts does not have sufficient funds to support their outstanding positions.
For more information or clarification, please email to SGX AsiaClear® at asiaclear@sgx.com
A pictorial depiction of the workings of the SGX AsiaClear® System of OTC Clearing follows.
SGX AsiaClear® System of OTC Clearing
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