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SEOUL, March 6 South Korea plans to require
interest rate swap contracts to be cleared through the Korea
Exchange as part of efforts to boost regulation on
over-the-counter derivatives transactions, its regulatory agency
said on Wednesday.
The Financial Services Commission (FSC) plans to finalise
full details by June on the operation of a central clearing
house for such transactions but the interest rate swap (IRS)
contracts will certainly be included, an official said.
The Korea Exchange, which currently operates the country's
main stock exchange, will also act as the central clearing house
under a law revision approved by the parliament late on Tuesday.
Policymakers from around the world have agreed to boost
regulation on over-the-counter derivatives transactions after
the lack of regulation and information on them had been blamed
for contributing to the 2008 global financial crisis.
"Once this law is enacted and the central clearing system is
established, counterparty risks will be reduced," the FSC said
in a statement. "Details about the over-the-counter transactions
and the scale of the risks involves will also be known in real
time, facilitating systematic market-risk management."
IRS contracts accounted for more than 60 percent of the
over-the-counter financial derivatives transactions in South
Korea, that the commission valued at 6,904 trillion won ($6.35
trillion) at the end of 2011.
But sources at foreign banks operating in South Korea have
voiced concerns in recent months that they could be shut out of
the IRS market should the local clearing house fail to meet
standards imposed by their home authorities.
South Korea may also require non-deliverable forward (NDF)
transactions to be cleared through the Korea Exchange at a later
time, the commission official said, although he could not say
when such a decision will be made.
($1 = 1087.0000 Korean won)
(Reporting by Se Young Lee; Editing by Choonsik Yoo)