Last Year, OTC Derivatives Clearing Services Surpassed 1,000 Trillion Won

Korea Exchange, 9th Anniversary of OTC Derivatives Clearing Service
Trading Started in 2014... Annual Growth Rate of 24%

Since the Korea Exchange (KRX) started its over-the-counter (OTC) derivatives clearing service in 2014, the clearing volume has surpassed 1,000 trillion won for the first time in history. The clearing balance has also grown significantly, approaching 2,000 trillion won.

[Image source=Yonhap News]

The Korea Exchange announced that the annual clearing amount for interest rate swap (IRS) transactions in 2022 reached 1,200 trillion won, a 5.6-fold increase compared to 213 trillion won in 2014. The compound annual growth rate (CAGR) is approximately 24%.

The clearing balance was recorded at 1,932 trillion won as of the end of February, which is 9.2 times higher than the 210 trillion won at the end of 2014. After surpassing 1,000 trillion won in January 2018, the balance is now approaching 2,000 trillion won in about five years.

The Exchange explained, "Although the clearing amount temporarily decreased in 2020 due to COVID-19, it increased significantly again after 2021. In 2022, due to the rise in the base interest rate and increased interest rate volatility, demand for hedging transactions through Korean won interest rate swaps surged, leading to the first-ever annual clearing amount exceeding 1,000 trillion won."

The Korea Exchange acts as a central counterparty clearinghouse (CCP) for OTC derivatives, confirming the creditor-debtor relationship between trading parties and guaranteeing settlement performance. Clearing services for Korean won IRS transactions began in March 2014, and mandatory clearing was introduced on June 30, 2014.

Currently, there are a total of 64 clearing participants (clearing members and clients), an increase of 8 from 56 participants at the start of clearing in 2014. The composition of participants has diversified to include 17 foreign banks, 23 securities firms, 13 domestic banks, 5 insurance companies, and 6 asset management firms.

Based on cumulative clearing amounts, foreign banks hold the largest share at 43%, followed by securities firms at 36%, and domestic banks at 20%. Regarding transaction details, major clearing participants such as foreign banks, securities firms, and domestic banks mainly engage in short-term transactions of three years or less. In contrast, insurance companies participating as clearing clients tend to trade medium- to long-term contracts exceeding five years. Asset management firms primarily trade short- to medium-term contracts ranging from one to five years.

The Exchange stated, "We plan to expand the eligibility criteria for clearing Korean won interest rate swaps and to broaden the scope of OTC derivatives subject to clearing in the future."