Kah Yang Chong, David Holcombe and Paul Houston
Kah Yang Chong, David Holcombe and Paul Houston

FX Clearing: Discussing the complexities, current models and future development

With Kah Yang Chong, ForexClear Product Manager, David Holcombe, Product Lead for FX Futures & Clearing at 360T, and Paul Houston, Global Head of FX Products at CME Group.

First Published: e-Forex Magazine 95 / ALGOFX LAB / March 2020

Up until 2012, the FX market functioned without central clearing. Why did it become necessary? KYC: In 2011, the G20 leaders agreed to implement Uncleared Margin Rules (UMR) – introducing margin requirements for derivatives positions held on a bilateral basis. For the FX market, this had major implications for FX swaps, FX NDFs and FX options (FXO), which were deemed in scope for UMR. A phased-in approach led to the largest banks being in scope in 2016 and 2017, followed by regional banks and large buy-side firms between 2018 and 2019, and finally the majority of buy-side firms in 2020 and 2021.  Complying with the new rules presented a number of challenges. These include calculating Aggregate Average Notional Amount (AANA); determining which entities are in scope, when and in which jurisdiction; agreeing to new CSAs and custody relationships for each entity; and daily margin reconciliation and posting.  Trading cost and counterparty selection could also become a challenge. New...continued

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