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1. I have an account with an overseas futures commission merchant (FCM), can I use this account to clear my OTC trades on AsiaClear?
If you already have an account with an overseas FCM, please inform your FCM directly. Your FCM will, through its corresponding clearing relationship with an SGX OTC Clearing Member, link your account to SGX AsiaClear. Please contact SGX AsiaClear if you need any assistance.
2. Do I need to be an SGX Member to use the SGX AsiaClear® Facility for clearing?
No. You only need to open a clearing account as a customer with an SGX OTC Clearing Member. For more details, please refer to the menu on Getting Started.
3. How is the SGX AsiaClear® Facility different from other clearing systems?
SGX AsiaClear® operates a real-time 20-hour clearing system 5 days a week from Asian open to New York close. Clearing is instantaneous when the trade is accepted by the SGX AsiaClear® Trade Registration System (TRS). This eliminates the credit risks with the counterparty you traded with instantly. There is no need to wait till the European or US market opens. SGX AsiaClear® will also broaden the availability of more Asian-based participants, and together with SGX OTC Clearing Members service immediacy and operational efficiency to Asian-based customers.
4. Why should I use SGX AsiaClear®?
SGX AsiaClear® offers the following multi-benefits:
- Just one clearing agreement to access a network of clearing participants
- Increased Asian-based counterparties and prices with reduced credit risks
- Real-time OTC clearing and certainty in Asian time
- Automatic multilateral netting of positions under the same account
- Convenience of registering OTC transactions for clearing using your OTC Broker
- Service immediacy for trading and operational matters within the Asian-time zone
- Straight-through clearing, efficient processing, position valuation and statements
5. Are spread trades available?
The SGX AsiaClear® Trade Registration System (TRS) allows for spread trades for up to four legs. You can trade inter-commodity spreads between different contracts or intra-commodity calendar spreads.
6. What are margins?
Initial margins, which are good faith deposits to guarantee the settlement of a contract, are calculated and required for all new outstanding positions in an account that has not been liquidated or netted by an opposite position in the same contract.
The 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.
For outstanding positions that are profitable, the gains will be credited into the customers 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.
Margin calculation, accounting and processing work are done by the SGX Clearing House and SGX OTC Clearing Members, and they are seamless and transparent to market participants. Customers are contacted only when their accounts does not have sufficient funds to support their outstanding positions due to addition of new position or losses.
7. Why do we need to deposit margins?
Margining is a very effective system for managing the risk of positions. When buyers and sellers trade bilaterally without clearing, they are managing their commodity or freight price risk but are exposed to the credit risk of the counterparty who may not settle later.
Margining enables the regular settlement of prices changes of the contract so that no party to the trade is owed a large outstanding amount from the opposite party. Each day any price change in the contract value is deducted from the account of the party with the losing position and paid to the account of the party with the profitable position. Hence, this reduces the possibility of a party not settling what it owes. Its a proven and effective method of settling the losses of positions without taking the unnecessary credit risk of letting large losses accumulate and deferring settlement until the contract expiry. Such losses ultimately still have to be paid any way. And its safer to deduct it as prices change.
Hence, margin is actually a small price to pay to insure against credit risk of the counterparty one traded with. However, unlike insurance, the margin is not like an insurance premium that is paid. Margins when deposited belong to the customer.
On the other hand, the flip side is that customers also receive their gains from price changes upfront. Any gains from profitable positions are also paid upfront into customers accounts, and such excess funds can be kept in the account to earn interest or withdrawn.
8. Do SGX OTC Clearing Members pay interest on margins or funds in a customer account?
SGX OTC Clearing Members would pay interest on most currencies deposited as margins or on the funds in customers accounts, which may include mark-to-market gains from profitable outstanding positions held by customers. Mark-to-market gains are profits on customers outstanding positions that are re-valued and settled daily and paid upfront into the customers accounts.
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