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SGX to clear Asian FX Forwards

The Singapore Exchange (SGX) is set to become the first bourse in the world to start clearing Asian Foreign Exchange Forwards (FX Forwards) when it makes the service available by September this year.

SGX said the clearing of Asian FX Forwards would include the non-deliverable currencies traded in the region.

These are the Chinese yuan, Indonesian rupiah, Indian rupee, Korean won, Malaysian ringgit, Philippine peso and Taiwanese dollar.

SGX said the initiative is in line with recent global regulations on mandatory clearing for non-deliverable FX forwards and FX options via a central counter party.

This latest over the counter clearing comes after the exchange started clearing of interest rate swaps denominated in Singapore dollars last year.

SGX said it has cleared nearly US$80 billion of interest rate swaps since the launch.

The new clearing service is expected to enhance Singapore’s position as a market for trading of interest rate derivatives and foreign exchange.

So far, 11 SGX clearing members are eligible to clear FX Forwards.

They include Barclays Bank, Citibank, DBS Bank, HSBC, OCBC and UOB among others.

SGX said it expects the membership to grow in the months ahead with membership interest from all banks active in these products.

Meanwhile, SGX has proposed two initiatives to improve market transparency and enhance price discovery through changes in the pre-opening and pre-closing routines.

In a separate announcement, SGX said the first proposal will involve the publication of real-time Indicative Equilibrium Prices (IEP), throughout the pre-open and pre-close phases.

This is for market participants to better assess market demand and supply conditions, and adjust their orders accordingly.

IEP is the price at which orders would be executed if auction matching were to occur at that point. With the proposal, the IEP would form the opening or closing price.

At the moment, investors can only see the aggregate buy and sell quantities at the various bid and offer prices.

SGX also proposed to have a random end to the pre-close phase for a varying duration between four and five minutes. Currently, this is a fixed duration of five minutes after the trading session.

The end of the pre-close phase will be synchronised across all counters.

The varying time period protects the integrity of the closing price against the impact of sudden large entry and withdrawal orders.

The proposals are open to feedback until June 15.

Adapted from CNA (By Millet Enriquez)

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