- Exchange Traded Derivatives Clearing
- Clearing Members
- Clearing Mechanism
- Clearing Mechanism Developing History
- Clearing Mechanism
- Clearing Process
- Intraday Profit & Loss Trial Balance
- Daily Settlement Price
- Formula for Calculating Final Settlement Prices
- Clearing Margin Accounts
- Position Management
- Safeguard System
- Products exempted and not exempted from liquidation on behalf of a principal in the after-hour session
- Notice for Foreign Currency Denominated Contracts Settlement
- Margining
- Market Information
The over-the-counter derivatives market has features such as complication, low transparency, highly interconnected between counterparties, and positions that are majorly held by a few institutions. Finance Supervisors realized that financial institutions are “too big to fail”, and “too highly interconnected to fail” which threatened the stability of the financial market. OTC derivatives central clearing was promoted aggressively, Basel III regulated uncleared OTC derivatives shall have higher capital charge in related to counterparty credit risk, Unclear Margin Rules, UMR, also requires higher margin charge for both sides of the counterparties whose transactions had not participated into the central clearing.
TAIFEX start its OTC derivatives central clearing business on 25 July 2022, offering its clearing members TWDIRS central clearing service, in order to join the trend of international financial supervisory and to reduce financial market risk. TAIFEX continues to offer TWDIRS client central clearing service in 2023, USD/TWD NDF central clearing services is also offered for clearing member proprietary transactions and client transactions. As an OTC central clearing counterparty, TAIFEX gives the opportunity for local financial institutions to conveniently clear their transactions inbound, also, due to TAIFEX being recognized as a QCCP (qualifying central counterparty) by the Financial Stability Committee, it is capable of lowering the capital charge of financial institutions. Via the mechanism of risk management of central clearing of TAIFEX, the systematical risk of the market is reduced, and the resilience of the financial system of our country is strengthened.
Financial institutions may shift counterparty risk to TAIFEX by participating in TAIFEX OTC derivatives central clearing, there are 5 advantages to clearing through central clearing:
- Simplify the bilateral clearing process;
- Reduce counterparty default risk;
- Increase market transparency;
- Decrease the market’s total risk exposure;
- Alleviate operation costs and compliance costs.
Through Novation, Daily mark to market, Ad-hoc risk monitoring, and Margin Call procedure, the default risk is largely decreased. Even if a default occurs, there are processes such as Porting, Hedging, and Auction to protect the market and the rights of non-default participants. TAIFEX also contains well-reserved financial safeguarded procedure, i.e. default fund and financially sounded clearing member to keep the market stable and functioning.
